Gift Tax / Borrow money for house

[pelomon]

What is the name of your state? VA

My wife and I are in the processes of buying a new home. My Mother Inlaw has loaned us $60,000, which has been used as the down payment. We will be selling our current house and then paying her back from those proceeds, prior to closing on the new house. Her Tax Preparer is concerned about her needing to pay a Gift Tax on the $60,000. What kind of paper trail do we need to do, to show the $60,000 is not really a gift?

Thank you !

 

[Snipes5]

A loan agreement, including interest, a minimum of 4%.

This will also protect her in case you default, she can write it off as non-business bad debt.

Further, you can deduct the interest you pay her on your Schedule A, along with your other mortgage interest.

She will also need to claim the interest paid on her Schedule B.

If it is truly a loan and you are NOT paying interest, the IRS will "impute" interest and force her to claim it anyway.

The bottom line is, behave as though it is an "arm's length" transaction, between two unrelated parties. If not, there will be complications, and possibly a gift return.

Snipes