Can my father give me 25,000 for bills and down payment on a home free and clear? Or are there tax penalties?

Question

My dad is going to help me pay off my car and give me down payment money for new house totaling $25,000. I will repay half this amount a little at a time. He was going to give me a cashiers check and let me spend it but I'm afraid there will be tax implications. I live in New Mexico. I thought that maybe he could just write the check for the car and give me a smaller amount in cash or smaller gifts separately. What are the rules? Also I will eventually inherit money for the sale of his land that is getting paid monthly through escrow. Is there a way to avoid losing inheritance this way? He currently lives off this money. Thanks for the advice.

Answer 1

Anyone can give a gift to anyone else up to $12,000 per person per year. If a person giving a gift exceeds the $12,000 they need to file a gift tax return, but have a $1,000,000 lifetime exclusion they can charge the excess of against. If you are repaying back half of that (12,500) to your dad, then he is only giving you a gift of 12,500. Either have him spread the money over 2 years so that he doesn't exceed the $12,000 in either year or you pay him back $13,000, that way he only gives you $12,000 as a gift.

Answer 2

Since you are repaying this money, it is NOT a gift. There are no tax consequences to you for this.

Since it is not a gift, your father does not need to file a Gift Tax return regardless of the amount. However if your father is not charging you market rate interest he may have to claim the imputed interest even though he did not receive it.

Inheritances are not taxed at the Federal level although there is a Federal Estate Tax. The tax is paid by the estate before anything is distributed to the heirs. State inheritance and estate taxes may also be due.

Answer 3

Your father can give you $12,000 a year without filing a "gift tax" report. He can give you $25,000 and only needs to report a net gift of $13,000. If, in his lifetime, he exceeds $100,000 in gifts above the $12,000/year limit, he will need to pay a gift tax. The sum of all the gift tax reports will go to reduced the estate tax deduction allowed under the estate tax laws at the time of his passing (the deduction may be $1,000,000 on up, depending on congress).

You indicated that you will repay this amount a little at a time. If it is a loan, then your dad won't have to file a gift tax report, HOWEVER, you will have to pay interest, and if you don't, the IRS will assume your dad received interest and he will need to pay income tax yearly on the interest amount. The best bet is to have it reported as a gift. You can repay the gift with no tax consequences to you or your dad.

Answer 4

If half of the money is a loan, then only $12.500 of it is a gift - the part you'll be paying back is not part of the gift.

Since the gift will be over $12,000, he'd have to file a gift tax return, although unless he's already used up his million dollar lifetime exclusion, he won't have to pay a gift tax on it.

Maybe a simpler solution would be for you to pay back $13,000 of it instead of $12,500 - then the gift part would be inside the limit and no gift tax return would be due.

Answer 5

The tax liability will fall on your father. YOU do not have to pay taxes on gifts.

Answer 6

You can give $12,000 per year to anyone you want without being taxed. Your father could give you $12K and your mom $12K