USA Gift tax

[juliechinga]

My son is buying a condo and as parents we are providing the funds from our home equity loan. The condo will be in his name and he will be paying the loan amount himself. It is not a gift but a loan to him. I am wondering if it will be considered a gift. Want to make sure that he does not negatively affect him. Should we have a contract with him saying that we are loaning him the money?

Please clarify

Thank you

 

[Shelly]

You should have an agreement with him. It can be a simple letter that states the amount of the loan, when it will be repaid and must have an interest rate. The interest rate can be minimal but must be no less than the AFR, published by the IRS. There is an AFR for short term, medium term or long term loans, so depending on how long you are lending him the money the minimum interest rate will be different.

However, if you don't want the money back you could make an outright gift. You are allowed to give over $5 million during your lifetime without incurring any gift tax.

 

[kirby]

If he fills out the bank documents properly he will report that he owes you a loan. That will negatively affect his debt to income ratio and may affect his ability to get the loan. To test that he should discuss this with a different bank first and see how they feel about this. Then apply what you learned there to the bank he really wants to use