We’re looking into purchasing our first home and our parents are willing to help match whatever we are able to put down. I.e if we can put down 50k, then they will also help with 50k.
We’re not very informed/educated on how the best way to go about this so it’s beneficial for everyone tax wise. Can someone help me understand how to go about this simply?
My understanding so far is that there’s an option that they can “gift” us this money but I believe there is only up to a certain amount? My partner and I are engaged not married yet so I think that affects the amount as well?
Then I think the other option is doing a family loan? If we do this, it seems you can’t do a 0% interest loan? If so, what’s the correct way to minimize this without being tax evasion/fraud? Can they “forgive” the interest we should have paid them? Do they still pay the tax on the theoretical interest they would have received? If so, could we pay that tax for them?
Sorry in advance if this is just not a good approach to take and I’m just trying to go about something in the wrong way. Appreciate any guidance/opinions provided.
Posted by hispazn23
1 Comment
Managing family loans is a delicate balance, but using the IRS Applicable Federal Rate (AFR) is the standard way to keep everything legal and avoid “below-market” loan issues. Since you’re both still single, your parents can actually gift up to $18,000 each to both of you individually, which can significantly lower the amount that needs to be a runable loan structure. It’s a smart move to document everything properly to keep the mortgage lenders happy and ensure no one gets an unexpected tax bill!