Loan from parents - no interest - do they need to file as gift?

Question

My parents (thank god for them) want to offer me a loan (in lieu of a formal mortage) so I dont have to pay the bank interest. My parents will charge me no interest. They are going to give me a lump sum to have at closing to buy my house outright. Will they need to file the lump sum as a gift if its a legit family loan? Do I have any tax issues to worry about? Thank you!!

Answer 1

A gift of up to 12,000 per year per person can be done with no paperwork. If each parent gave you 12,000 they file no forms. If they gift you more they would file a gift tax return but probably wouldn't have a tax liability since there is a lifetime limit most never reach. I think it is a million each now.
The recipient never files a tax return or pays tax on the gift only the giver.
This isn't the same as a winning where you pay tax like on a game show or lottery.
If it is an interest free loan they will need to pay tax on imputed interest income. The rate of imputed interest is set by tax code and is on any loan to family for less than market rates.

Answer 2

As long as you keep it private, noone needs to file anything. If they file that they gave you a gift, then you would need to file that as income and will probably be charged high taxes. Gifts are a much higher tax than income. You need to get together and discuss how they want to handle it. If they are going to file it, then you could look up the tax on it and just put a little away every month so youre not hit too hard at the end of the year. It would still be less than interest. I am not even sure you can file on gifts. I don't think you can. I would try and just keep it a private deal.

Answer 3

It is not a gift, just a family loan. You won't have any tax issues.

Answer 4

No, they can file it as a mortgage just as a bank would. It is not a gift. You are a very lucky person, I hope you know that

Answer 5

nope