My parents are lending me money for my mortgage, do I need to pay taxes on this money?

Question

I am buying my first condominium in New York city. My parents are going to be partial investors and helping me with the downpayment and mortage.

Answer 1

No. you are not required to pay taxes on it. Your parents are allowed to give you $10,000 a year tax free (I think it is $11,000 now). So even lending you money tax free falls into that category. No taxes are due as long at the amount is under that limit annually.

Answer 2

No. Your parents have to be VERY careful structuring a TRUE loan that is in terms similiar to what you would pay in the mortgage market or THEY will be paying taxes on the loan as a gift. If your parents are not taking an ownership interest but basically funding a mortgage for you they should set-up amortization schedules with a payment amount and record the mortgage as a lien against the property. They will need to report the interest income from the loan made to you on THEIR taxes.

If this is not the scenario (e.g. your parents funding the mortgage for you) but your parents will be actually on the deed to the property with an ownership interest the answer would be different. Also, if your parents are actually gifting you the money the answer will be different, but in neither case will YOU owe the taxes.

Answer 3

If your parents are truly lending you the money, it's not considered as income on your tax return. However, there should be a formal loan agreement drawn up, with the condo as collateral (just like a regular mortgage) and a fair market interest rate and payment schedule should be established. You then pay your parents back, with you deducting the interest you pay them as mortgage interest and they pick up the interest as interest income on their tax return. However, if the mortgage company finds out about this loan, they're likely to deny you the mortgage (too much debt). Therefore, you'll probably have to have your parents sign a document stating that the amount of money received is a gift, not a loan. BTW, each parent can give you a gift of $11,000 without any tax implication to them. Actually, they can give you as much as they want with no tax implication to you, but after the $11,000 from each of them, there's a gift tax issue to deal with by your parents.

Answer 4

Unless you have a contract to repay them with interest, this would most likely be considered a gift. If they receive part ownership, it is the purchase price of their share of the property. In either case, it would not be income to you. If you do have a loan document, it is still not income for you, but the interest you pay is taxable income for your parents.

I have to disagree with SuzeY about the mortgage company denying the loan because of this. They would still have the first lien on the condo and they know your parents are likely to forgive their loan if you get in trouble.

Answer 5

Your parents already paid income tax on that money. As far as I'm concerned the Government gets too much of our money now. Don't tell them.

Answer 6

i wouldn't think that you would. I do know that parents are allowed to give their children 10,000 dollars a year as a gift that the children don't have to pay taxes on. call up a CPA and ask them. just cover your tail. real estate can be quite tricky

Answer 7

Ask Suzie Orman....the financial expert on Cable. SuziOrman.com?

Answer 8

don't ask don't tell - if the irs doesn't come knocking at the door asking for taxes then don't report it because i don't think that your parents are going to turn you in to the irs if they are willing to help you purchase a condo. to answer your question no you don't have to report it.

Answer 9

what the IRS doesn't know can't hurt them !!!! A CPA would be better qualified to answer, or even the agent you are dealing with.

Answer 10

No you do not IMHO. Check a tax man if you want. I don't think this is.