Gift Tax Question

[MLJx5]

What is the name of your state? GA

My father-in-law is willing to purchase a home for my husband & my family, provided we pay him a certain amount every month (basically he would be our bank). He has the means to buy the house for us, but says that he has to set it up as a "rental property", and have us be only "renters" and charge us the going rate for a house of that size/price. He said this was to avoid the gift tax, stating that he could not just buy it for us wihtout charging us rent -without paying a gift tax. I am just curious if this is true.

Thank you very much in advance
MLJx5

 

[abezon]

He's confused. He can't be the mortgage holder and the landlord. You're either renters (& he files a schedule E & claims depreciation) or buyers (you make the mortgage payments & live in the house & claim mortgage interest & property taxes). With the second scenario, he doesn't have to claim the payments or interest as income if his only involvement is to hold title because you can't get the loan in your own name. Be sure the deal is in writing and includes a provision that you inherit the house if he dies before you pay it off.

BTW, he doesn't actually PAY gift tax. He files a gift tax return and his eventual $1.3M tax-free estate is reduced by the value of the house. Unless his estate is large, it won't affect him at all.

 

[MLJx5]

Follow Up Question

GA ~

Thank you very much for your help.

I was wondering if I could clarify something
Does this mean that if he (the father) wanted to ~ he could purchase the home for us, as a gift, and unless the total lifetime gift value were over $1.3M then he would not end up having to pay gift tax on it?

I'm afraid I don't know if he is confused, or if he is deliberately trying to do it this way and telling us that's how he "has" to do it.

Thank you again

 

[abezon]

Correct.


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