My parents in Asia would like to help me buy a house but will IRS tax the money coming from abroad?

Question

It would be a waste if they send me the 20% downpayment for a house if it gets taxed by the IRS presumably as income(?) on my part even before I purchase a property.

Answer 1

A gift from your parents is a gift. It is not income. It is not taxable.

Internal Revenue Code Section 102 provides an exception from income tax for gifts.

If the IRS were to audit you and assert that it is income, you would simply need to provide proof that the money was a gift. A written statement from your parents should suffice. If the Revenue Agent is skeptical, you might need the written statement in a sworn fashion, and attested under the local law of your parents jurisdiction.

There is one obligation, although not a tax, but if the gifts that you receive from foreign persons and/or trusts during the year exceed $100,000, you do have to file IRS Form 3520. Check out the instructions to Form 3520 which are available at www.irs.gov for details.

So, read the instructions to Form 3520, file the appropriate return, be prepared to prove the truth that the money was a gift, and give thanks for generous parents.

Answer 2

You need to check with a tax lawyer for definitive legal advice.

I believe that under Section 102 of the Internal Revenue Code gifts and bequests are excludible from gross income for Federal income tax purposes. That means that they are not taxed because they are not considered to be income to the recipients of the gifts.

This does not cover questions, if any, arising under Federal estate and gift tax laws, which should also be checked, but it's my impression that those types of taxes fall on the donor, not the recipient, and I doubt that a foreign donor, whose income is taxed in his home country; whose income is not derived from sources in the United States; who is not himself an American citizen residing abroad; and who is not otherwise subject to U.S. taxes, could be taxed on such gifts.

This should not be relied upon as tax advice; the questions you asked should be checked with a tax lawyer.

Answer 3

They should be able to do a transfer as a gift. They should see a lawyer to see what the yearly max is. If for example it is $10000 per year. They could do one in December for that amount and another in the next January for that amount so that you have been gifted for $20000.