Use gift money towards a down payment

Home buyers often get financial help from family and relatives in the form of gift money. The gift amount without being taxed is $15,000 for 2018.

Gift money are not loans, and the receiver does not have to pay it back. Banks and mortgage lenders want to make sure all gift money are recognized as gifts, and will require the person giving the gift money to sign a gift letter indicating that it was a gift and not a loan. This helps lenders in determining the borrower’s debt-to-income ratio correctly.

If you are honestly concerned about a gift tax, you can always file a FORM 709 (gift tax return). Then start deducting any amount gifted that exceeds the yearly non-taxable $15,000 from a $5.5 million lifetime gifting limit. Anytime you plan to gift away over $5.5 million dollars in your lifetime, then it is a good idea to file a FORM 709.