home purchase

Submitted by Leonard H Abrams on Mon, 2020-10-12 21:28

Thoughts! Son, 50 and girlfriend 45 want to buy first home. Need $50,000. Father wishes to give them this amount with a draw from his IRA. Father is 83 and not married. Father wants to draw the $50,000 and avoid gift taxes by giving each person $14,000, think that’s the current maximum, and loaning the son $the difference sat the IRS rate. Father would then receive payment of the loan within 60 days and return that amount to his IRA. Can this be done or is there a better way? Many Thanks, Len Abrams, ChFC



Submitted by Alan - IRA critic on Mon, 2020-10-12 22:51

  • Yes, this can be done. Father can take this distribution if he wishes and gift it to them. The annual gift tax exclusion is now 15k to each donee. He can return any amount to his IRA within 60 days if he has not done any rollover in the past 12 months. If the gifts need to be made very soon, that removes the option of waiting until January when perhaps much of the 50k would be his 2021 RMD, but he cannot roll back any amount that would be an RMD. This year there is no RMD, so he can roll back any amount he wishes, but only from one distribution if he has not done another rollover in the past year. 
  • If either son or GF has an IRA, they can also take up to 10k with tax but without penalty under the one time lifetime 10k first home exception. Of course, that would still be taxable, not as useful as a gift. 

Submitted by William Tuttle on Mon, 2020-10-12 23:49

  • There are no gift taxes on amounts > the annual exclusion (2020 = $15K) until the lifetime exclusion is exceeded.
  • There would only be the filing of Form 709.
  • They would have to declare any loans to be used for the down payment.
  • This would be a red flag for the underwriters and may prevent them from receiving a mortgage.
  • The simplest thing to do is just gift the money and fill out Form 709 applying the excess to the annual exclusion to the lifetime exclusion.
  • No taxes will be due unless/until the father’s lifetime gifts > the annual exclusion + his estate is > the lifetime exclusion.

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