I Want To Help My Son Buy A House — If I Give Him $30,000 For The Down Payment, Will I Pay A Gift Tax? Do I Need To Report This To The IRS?

Considering assisting your son with a $30,000 contribution toward the down payment on his first home? This act of generosity can significantly ease his homeownership journey. However, it’s important to understand the tax implications for both you and your son as well as the reporting requirements to the IRS.

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Understanding Gift Taxes For The Giver

When you give more than the annual gift tax exclusion amount — $17,000 in 2023 — to anyone, it can potentially trigger gift tax implications. However, there are nuances to consider:

Annual exclusion: In 2023, you can give up to $17,000 to an individual without incurring gift taxes or needing to report the gift to the IRS. Because your intended gift is $30,000, it exceeds this exclusion by $13,000.

Lifetime exemption: The amount over the annual exclusion reduces your lifetime gift and estate tax exemption, which is $12.92 million in 2023. Unless your lifetime gifts exceed this threshold, you likely won’t owe any gift tax.

Reporting to the IRS: You will need to report this gift to the IRS using Form 709, as it exceeds the annual exclusion. This doesn't necessarily mean you’ll owe taxes; it simply reduces your lifetime exemption.

Impact On Your Son

For your son, receiving this gift comes with considerations:

• Mortgage application: Lenders scrutinize the sources of down payments. Your son will need to declare the $30,000 as a gift, not a loan, to avoid affecting his loan eligibility.

• Gift letter: Mortgage lenders typically require a letter from you stating that the money is a gift and not a loan, with no expectation of repayment.

• Tax implications for the recipient: Generally, the recipient of a gift does not have to pay taxes on it. The responsibility for any applicable taxes lies with the giver, not the receiver.

Tips And Considerations For The Giver

Impact of gifting on retirement plans: For parents considering such a gift, it’s important to assess whether this decision aligns with their financial capability, especially concerning retirement plans. The goal is to help without compromising your financial stability​​.

Using the gift tax exclusion: Parents can gift up to $17,000 per recipient without incurring gift tax implications. If your child is purchasing a home with a spouse or fiancé, you and your spouse could each gift $17,000 to both, totaling $68,000 without tax consequences​​.

Legal considerations for married recipients: If you’re gifting to a married couple, be aware that the gift becomes a joint asset. In case of divorce, this could complicate matters. 

Consulting professionals: Consider consulting a financial planner and accountant to understand the specifics of your situation, ensuring that your gift aligns with both your and your child’s financial goals​​.

Assisting your son with a $30,000 gift toward his home down payment is a substantial and supportive gesture. While it has tax reporting implications for you, it shouldn’t adversely affect your son’s financial situation, especially if managed correctly with the necessary documentation. 

To ensure compliance and understand the full scope of this decision, consulting a tax professional or financial adviser is recommended. This approach will help you navigate the tax implications effectively and make the most of your generous contribution.

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