Gift vs. Loan

[Pedro Dave]

What is the name of your state (only U.S. law)? CA
My sister would like to buy a house but doesn't have enough money for a down payment. I want to give her some money but would like to know whether it is better for my taxes to just gift it to her or make it a "loan." If I make it a loan, can I write it off on my taxes?What is the name of your state (only U.S. law)?

[FlyingRon]

Depends how much money we're talking about here. If it is a gift, you have to file if it's above a threshold ($12000 I think these days) but you have a million dollar lifetime exclusion on gifts, so you probably won't owe any tax.

If it is a loan, there better be a reasonable expectation of pay back (like a promissory note) or they'll just consider it a gift.

You can't "write off" either one. On the contrary, if you charge interest, you must declare that as income.

[Zigner]

And, the lender your sis will use will want an explanation of where the money is coming from - she may wish to check with THEM as to what they want/need to see.

[HomeGuru]

Originally Posted by Pedro Dave

What is the name of your state (only U.S. law)? CA
My sister would like to buy a house but doesn't have enough money for a down payment. I want to give her some money but would like to know whether it is better for my taxes to just gift it to her or make it a "loan." If I make it a loan, can I write it off on my taxes?What is the name of your state (only U.S. law)?

**A: if it is a loan then the loan would be considered a liability for your Sis and may complicate her mortgage loan qualification. A gift of cash that she does not have to pay back would be better. The lender would require a gift letter of some sort.

[tranquility]

If it is a loan, even if you don't charge interest, you will have to report an imputed interest as income.