"What?! You think down payments just grow on trees?" - "Dad" 2012
The ?Bank of Mom and Dad? is open for business, even if more conventional lenders are not. In 2011, one in three first-time home buyers either received a gift or a loan from their families in order to make a home purchase according to the National Association of Realtors (NAR)[1]. And while you might think that parental lending is an informal process, it turns out there is a little more to it than many expect. If the money is a gift, it must remain under federal limits if the children want to avoid paying taxes on that gift. If the money is a loan, mom and dad could owe taxes on the interest as the loan is repaid (though rates on these loans can legally be as low as 0.19 percent or even less in some cases)[2].
If the transaction between parents and children is not structured properly, both parties could suffer when tax season rolls around. Depending on what your financial advisor says you should do ? and whether you want the money to be an outright gift (in which case you can give your offspring up to $26,000 a year before you have to file a gift tax return) or a loan (in which case you need a structured promissory note and clearly-defined, federally-regulated terms) ? there are myriad ways to help your child take advantage of today?s buyers? market.
Would you help your kid buy a house?
Remember, this article is for educational purposes only and is not intended as legal or financial advice! Thank you for reading the Bryan Ellis Investing Letter!
Your comments and questions are welcomed below.
[1] http://realtormag.realtor.org/daily-news/2012/02/02/more-parents-act-kids-mortgage-lender
[2] http://money.cnn.com/2012/01/31/real_estate/mortgage_lending_kids.fortune/index.htm
Category: Real Estate
Source: http://investing.bryanellis.com/633/parent-lending-plays-major-role-in-the-housing-market/
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