Are you thinking of giving your child, relative or friend a down payment for a home in the Denver area? Have you been given a magnanimous amount of money to put down on your first home?
It’s more common than you may think. Roughly one-quarter of first-time home buyers receive a down payment gift from relatives or friends. Before you decide what to do in this positive situation, know the details about how taxes and how this large gift can affect you. Let’s go over some information that you need to know for the upcoming tax season.
First of all, there is no tax deduction for giving a non-charitable gift. However, your gift of up to $13,000 is tax-free. If you’re the one giving the down payment as a gift, you will not pay federal income tax, and neither will the recipient. This holds true as long as you give $13,000 or less in 2011 or 2012. Plus, you and your husband or wife can each give separate gifts to your children, which the IRS calls gift splitting.
Be aware that the rules for using the gift as down payment depend on the specific rules of the lender and whether your loan is guaranteed by Fannie Mae, Freddie Mac, or FHA. And most lenders will require that someone who borrows money to buy a home has money left in the bank after closing.
If you want to give more, check in with a tax professional. You still may not owe taxes, but you will have to let the IRS know about the gift by using Form 709.
Are you ready to buy a home in Denver with your gift? Click here to search for homes in the area, and call me at 888-860-1931 to begin the process of looking for your next house.
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