With an extreme lack of inventory facing so many of my buyers right now, they need all the help they can get. The biggest obstacle for many is the lack of money for a down payment. Thankfully, one solution is to get some help in the form of a gift from a family member, close friend, or a charitable organization.
As a mortgage professional, I have become very familiar with the IRS code on this topic because there is so much confusion regarding the tax implications of giving a cash gift to help a loved one buy a home. Before I delve deeper into this, a disclosure: I am not a licensed tax preparer and don’t ever want to be one – I have mad respect for tax professionals. This article is not to advise specific tax guidelines but instead give some useful, general information to help lead you in the right direction. Please seek a tax professional for more detail.
The 2021 annual gift exclusion will not change from its current $15,000 that you can give to as many individuals – your kids, grandkids, their spouses – as you’d like, without gift tax consequences. The person receiving the money does not have to report it to the IRS or pay gift or income tax on its value. However, if you give the gift and it’s more than $15,000 per individual, you will want to pay close attention to the following.
Here is the good news for most of us. Unless you are gifting more than $11.7 million, you will pay no taxes on that gift. Yes, you heard me right. I am talking millions here – Thanks to the lifetime gift tax exemption, you can give away $11.7 million tax-free throughout your entire life and not pay one penny on gift taxes. Of course, this could change as new tax policies get enacted, so be sure to always check with Uncle Sam or your tax professional before writing that check.
When my clients learn about this little nugget, they realize worrying about gifting more than the yearly allotment of $15,000 is a moot point. Most will not pay any taxes on the gift as most of us cannot fathom having $11.7 million to give our loved ones when we pass. According to the Joint Committee on Taxation (2015), only 2 out of 1000 people who die – owe any estate tax. So gift away, my friends! Show your loved ones how much you care now that you have this critical information in your pocket!