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Paying Down on a Mortgage with Money Received as Gift

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nemoryer
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Paying Down on a Mortgage with Money Received as Gift  Reply with quote  

I live on the West Coast. I have "gifted" my son a sum of $100,000 which I asked him to apply towards his FIRST MORTGAGE and pay it down. There will still b a balance remaining.

I also sent them a smaller sum (as gift also) to pay off their SECOND MORTGAGE.

They are apprehensive doing this due to the Patriot Act, or whatever it is they are mumbling about.

I told them, far as I knew, this was legitimate and that all they were doing was paying down on the principal of their mortgage.

I then gave them an ultimatum. Cash the check by so and so date, or I will take back the offer and put a stop payment on both checks because honestly, I am a bit appalled by all this drama this is creating.

I am not a terrorist and neither are they.

First, this has nothing to do with their income for next year. There is no more inheritance tax.

Your opinion is appreciated.

Thank you.
Post Thu Jun 18, 2015 12:46 pm
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littleroc02us
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Not sure what the Patriot Act has to do with anything. The Patriot Act has to do with Terrorism, not gifting your children with money. https://en.wikipedia.org/wiki/Patriot_Act
As for a 100k gift to pay off the principal of your son's mortgage, the problem with this is your allowed to gift one individual per calendar year 14k and no more. So if you do this, you'll be taxed your income tax rate of 25%, 28% or 35% or whatever they are now. This tax will take effect on the remainder of 86k of the gift which is a lot of money. Why not gift the full amount of 14k per year for the next 10 years to avoid such a hefty tax?

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu Jun 18, 2015 1:29 pm
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blixet
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The $14k is the annual exclusion limit. The amount above that is not taxed immediately. One only files form 709 to report the gift. The total gifts reported over one's lifetime count against the current lifetime exclusion of $5.43 million per person on federal gift/estate taxes. Nothing is owed currently.

I agree that the Patriot Act probably doesn't apply. Maybe some have reasons to prefer to avoid scrutiny. One thing about a gift, though, is that it doesn't have strings attached. Once given, it is the giftee's to do with as they choose.

From the tenor of the post, without knowing the family backstory, I hesitate to offer any more of any opinion other than it seems a generous offer tinged with a little bit of crankiness. I had a parent who was generous but mean and controlling. Didn't work out well. Hope that's not the case and that everything resolves for you.

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Post Thu Jun 18, 2015 1:56 pm
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oldguy
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I agree with Blixit, the gift tax applies only to the amount that exceeds the $5.4M exclusion. I did the dame thing - gifted $100k to each child, you File Form 709 with the IRS.

I suspect the issue is that you are directing them to prepay their mortgage.. They probably have a good 30 yr, fixed rate 4% mortgage, a "keeper" - if I was them I would not want to prepay a good 4% fixed longterm mortgage, they are way better things to do with $100,000 than retire a 4% loan. Eg, invest it in something that pays 6%, 8%, 10%, etc and use that $100k to build wealth for their future.

(A $100,000 lump sum placed at 10%/yr for 30 yrs equals $1,750,000)
Post Thu Jun 18, 2015 3:03 pm
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littleroc02us
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My question is the IRS states this http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes#1, but your saying My father can gift me 100k for the next 20 years until he dies and there will be no taxes so long as the total doesn't exceed 5.45 million in the end? I didn't know that if it's true.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu Jun 18, 2015 4:21 pm
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blixet
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You can check it out here:

What's New - Estate and Gift Tax
Form 706 Changes
The applicable exclusion amount is $1,500,000 (2004-2005), $2,000,000 (2006-2008), $3,500,000 (2009), $5,000,000 (2010-2011), $5,250,000 (2013), $5,340,000 (2014), and $5,430,000 (2015).


See: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Whats-New-Estate-and-Gift-Tax

and: https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html

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Post Thu Jun 18, 2015 5:30 pm
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littleroc02us
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quote:
Originally posted by blixet
You can check it out here:

What's New - Estate and Gift Tax
Form 706 Changes
The applicable exclusion amount is $1,500,000 (2004-2005), $2,000,000 (2006-2008), $3,500,000 (2009), $5,000,000 (2010-2011), $5,250,000 (2013), $5,340,000 (2014), and $5,430,000 (2015).


See: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Whats-New-Estate-and-Gift-Tax

and: https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html


So what is the point of the IRS saying 14k for gifting annually?

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu Jun 18, 2015 7:17 pm
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blixet
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As long as you don't gift more than $14k per person to one other person per year, you don't have to file the 709 and the gift doesn't count towards your $5.43 million lifetime cap on gifts/estate that are excluded from taxation.

Unfortunately, the estate tax law changes frequently with the political wind so your 20 year gifting question only works under current law. There is political risk over time. Sometimes the lifetime exclusion goes up, sometimes down, sometimes it disappears completely for a while then comes back. Same with the tax rate on estates. It can be hard to plan for asset transfer with high net worth. I guess it's not a problem without some upside as well. Smile

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Post Thu Jun 18, 2015 8:51 pm
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littleroc02us
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quote:
Originally posted by blixet
As long as you don't gift more than $14k per person to one other person per year, you don't have to file the 709 and the gift doesn't count towards your $5.43 million lifetime cap on gifts/estate that are excluded from taxation.

)


I was just mentioning this conversation to a good friend of mine who is a very smart, wealthy and knows tax law and he explained it to me in a way that made sense, so now I totally get what your referring too. I learned something today. Smile

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Fri Jun 19, 2015 1:52 pm
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blixet
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Well that's a good thing. I hope we hear back from the OP and find out more. This is an interesting topic. I'd like to hear the other side of the story from the giftee, but I reckon that isn't likely.

Information is more valuable sold than used – Fischer Black
Post Fri Jun 19, 2015 4:44 pm
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oldguy
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I looked into the Patriot Act a bit more, maybe this is what they are concerned about? If they (or you) are from outside the USA, particularly Iran, Iraq, Israel, etc, then large lump sums of cash (>$10,000) might trigger some investigating - eg, banks are required to register >$10k cash transactions.

Patriot Act - """The definition of money laundering was expanded to include making a financial transaction in the U.S. in order to commit a violent crime;[69] the bribery of public officials and fraudulent dealing with public funds; the smuggling or illegal export of controlled munition[70] and the importation or bringing in of any firearm or ammunition not """[/quote]
Post Fri Jun 19, 2015 5:49 pm
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