"The lender says that we will get the loan for $433,000 and have the sellers (parents) give a 'gift of equity' to satisfy the 20% downpayment needed."
Now that I have more facts to work with, that's probably the way to go.
"I would rather they didn't report it because no money was actually given, it was our money to begin with. But the lender is telling us there is no way to verify/document that that money was ours, contributed in the initial purchase. "
The lender is right. Apparently, you didn't put anything in writing in the form of any type of legal document, at the time of your "contribution".
"so as to not put us over the $60,000 limit per year allowed to be gifted to me and my husband from his parents."
The limit for 2018 is $15K maximum gift per individual, before the 709 Gift Tax return is required. But overall, I think that requirement is kinda stupid. Can the IRS "prove" that you gave your parents $100K? Technically, since it was used to purchase "their" house with, it was a gift from you to them. What do you think the chances are the IRS well "ever" know about that, unless you, your parents, or someone else who knows and doesn't like you, tells them?
Now as far as the gift of equity from your parents to you, that "will" be in writing in some form or another, because that "down payment" (for lack of a better term) will, without question, be documented somewhere. What I'm concerned about is splitting it between 6 people since only two people are using that "gift" as a down payment on a house.
Overall, your parents should gift it to the two of you buying the house, do the 709 Gift Tax Return and be done with it. Besides, their total untaxable lifetime gift allowance is $5.2 million dollars for "each" of your parents. Meaning that as a couple, each of them can gift a max of $15K to each of you, and no gift reporting requirement exists. So while your parents can gift each individual in your household a maximum of $30K per tax year, that means you and your husband can each receive a maximum of $30K from them. (Oh I see now where you got that $60K figure!) and then spread the remaining $40K among the kids.
But like I mentioned earlier, it's that other $40K I'm wondering about, since the kids aren't buying the home with you. Hence, my suggestion to just do the gift tax return and be done with it. It's not like they will actually be paying any tax anyway, and that form 709 takes less than 5 minutes to fill out, even if you write slow.
