AboutJohn Stancil, CPA Expertise I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a part time tax practice for over 30 years. I am a member of the AICPA, National Society of Tax Professionals, and the Institute of Management Accountants.
Experience I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CFM, and CIA. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I write a monthly tax column for the local newspaper.
Expert: John Stancil, CPA Date: 7/15/2008 Subject: Gifting to my children
Question Hi John,
My wife and I would like to help our 2 grown kids pay off their home mortgage. The principle that is due is about $95,000 and $85,000.
I'm considering loaning them the money for them to pay off their mortgage. Then they would pay me monthly (instead of the mortgage company) but without interest. Legally, do I have to charge them interest?
At the same time I would gift to them the maximum allowed each year, which I believe is $22,000 ($11,000 per parent per year). Is this correct? Therefore, after 4 years, they would no longer have to pay me, since my gift to them after 4 years would be $88,000.
I'm not sure if this makes any sense. Basically, I would like to pay off their mortgage soon, and then gift them over 4 years so that they don't have to pay me back.
Sorry if I am not asking the question properly. Or do you have any proposal as to what I could do to help my 2 kids pay off their mortgage without violating any gift tax laws?
Answer Ben,
Thanks for your question.
Since the loan is above $10,000 the IRS will impute interest to the loan. What this would mean is that the IRS would assign a rate to the loan based on the current federal rates. They would presume that you charged that rate of interest and that amount was paid to you. You would have to report the interest income. However, since you did not actually receive the interest, it would be considered a gift to them in the amount of imputed interest.
The current annual gift limit is now $12,000 so you could give each of them twice that amount in interest forgiveness and principal reduction. If your kids are married, you can double that to $12,000 by making the kid's spouse a part of the gift process.
