U.S. 1040 Tax Question: Help with Down Payment on House

Factual Questions
1

I’m trying to answer this question for someone, and I’m not turning anything up on the usual Internet sources –

If someone gets help from his or her parents for a down payment on the house, should that help be reported as income on the 1040?

Secondarily, does any cash assistance from one’s parents count as income?

I tried looking up “gift” on the I.R.S. Web site, but all I turned up is information about receiving a gift of property or deductions for giving a gift to charity.

Does anyone know where would be a good place to look for answers on this?

2

This page might be helpful.

The only gifts to another person (as opposed to a charity) that are not potentially taxable are for tuition or medical expenses. Otherwise, there is a yearly limit to how much you can give before the gift is potentially taxable, which in 2006 was $12,000.

However, there is a table of “Unified Tax Credits” on that page which indicates that Form 709 would have to be filed if the gift exceeds $12,000, but gift tax would be paid only if the total of all gifts exceeded $345,800. Married couples can effectively double those amounts if they split the gift.

Hope that helps.

3

One key point …gifts are not taxable to the recipient.

The giver (parents) are the ones who may have issues and they may already be fully aware of them so I’d suggst the friend ask his folks before doing any more digging.

BTW, the $345,800 figure is th amount of tax that isn’t taxed (confused) not the amount of the gifts

4

Oops, yes that’s right.

Hey, it wouldn’t be a proper tax code if it were easy to follow, would it? :rolleyes:

5

Also, it’s irrelevant how you use the gift money. You could spend it on a house down payment or clown porn and it doesn’t matter for tax purposes. Put another way, you might spend money on something that is tax deductible but it doesn’t matter if that money is from a gift or clown porn residuals.

6

My parents gave me an advance on my inheritance which I used towards the down payment on my house. While there are yearly limits on gifts there is also a lifetime cap, which meant that they could gift me more than $12k that year without me having to pay any taxes on the gift.

I’m not a tax attorney so talk to one or contact the IRS for exact details.

7

Thanks, all! This is fantastic information.