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I'm considering buying a house for 200k. When buying place ($200k), I will be paying 120k as down-payment, and financing the rest. I am thinking of my mother pay an additional 80k (to buy the place for cash).

Should I do this or not? I will still be a little liquid, but no where near as much. She will still be liquid as well. I am not married / not kids.

What are the pros/cons of this? If she adds 80k, will that count as a gift, and will I have to pay taxes on that? How do I avoid double-paying taxes on that? Makes no sense that it would be taxed again.

If double-taxation can't be avoided, what's the maximum she can give to avoid it? Also, I'm considering signing a personal loan with my mother to pay her back with 0% interest to avoid the taxation issue. Is this an option?

I don't want her name on title because she never bought a home and if she wants to buy a place, I don't want her loans to be at higher interest later on. She's fine not being on the title.

Also, I know there's a 13k yearly limit on gifting. Does that mean that if she gifts more than 13k that she will be tax-liable for it?

Thanks!

Dheer
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David
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1 Answers1

7

Is it a gift or a loan?

Either way, ask the same lawyer who will do the closing to record a mortgage on the property, your mother holds it. You are required to pay her market interest, 4% or so should pass IRS scrutiny.

If it's truly a loan, decide on the payoff time and calculate the payments, she'll have a bit of interest income which will be taxable to her, and you might have a write-off if you itemize, which is unlikely.

If it's a gift, since you mentioned gift concerns, she can forgive the interest, and principal each year to total $13K, or file the popular Form 709 to declare the whole gift against her $1M unified lifetime gift exclusion (which negates the whole mortgage/lien thing)

bstpierre
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JoeTaxpayer
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