How to give money to adult children for a house and avoid tax problems

How to give money to adult children for a house and avoid tax problems

Let’s say my wife and I loaned our daughter and her husband the full amount needed to buy the house. None of this has been documented. What should we do to minimize the tax grab and keep things legal? There are a number of factors that you and your spouse should consider – as well as your daughter and her husband Suppose your intention is to be reimbursed. The loan must be documented by a written promissory note. The rating should reflect the amount borrowed, the interest rate, repayment terms and other key provisions. The interest rate on the loan can be either a fixed rate or a variable rate based on a benchmark index, such as a specified prime interest rate. And it should be payable at regular intervals. While the intervals may include annual, quarterly or monthly payments, most home mortgages are paid monthly. The interest should be set at a rate not lower than the interest rate prescribed by the IRS so that the loan is not treated as a below market loan, which could trigger taxes. What is the fiscal vulnerability?

Highlights

  • According to Forbes “How to Give Adult Children Money for a House and Avoid Tax Problems.”
  • Let’s say my wife and I loaned our daughter and her husband the full amount needed to buy the house. None of this has been documented. What should we do to minimize the tax grab and keep things legal?

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