Hello, this year I helped my parents buy a car by paying a dealership in full (about $40,000) with a cashier's check because my parents didn't have enough cash on hand for such. The car's title only has my 2 parents' names on it. My parents intend to pay me back, but we didn't have a formal loan agreement as I didn't quite understand gift tax reporting well until doing more research afterwards. As such, I am thinking I will need to file Form 709 for gift tax reporting. Am I correct in thinking I will need to file Form 709 for gift tax reporting for tax year 2023?If so, does it make sense for me to break down the purchase as 2 separate gifts of about $20,000 to each parent since both parents' names are on the car title?My parents would want to avoid the need for gift tax reporting when they reimburse me from their joint bank account. To achieve such, should they only reimburse me for the max gift tax exclusion amount per year (currently $17,000)? Or can they they reimburse me in 2 transactions from their joint bank account to make it clear each parent is using up their respective max gift tax exclusion amount for the year?Thank you for your time.

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Question

Seeking clarifications around gift tax reporting for helping my parents buy a car

Forum|Forum|2 years ago
October 30, 2023
2 replies
26 views

Hello, this year I helped my parents buy a car by paying a dealership in full (about $40,000) with a cashier's check because my parents didn't have enough cash on hand for such. The car's title only has my 2 parents' names on it. My parents intend to pay me back, but we didn't have a formal loan agreement as I didn't quite understand gift tax reporting well until doing more research afterwards. As such, I am thinking I will need to file Form 709 for gift tax reporting.

Am I correct in thinking I will need to file Form 709 for gift tax reporting for tax year 2023?
If so, does it make sense for me to break down the purchase as 2 separate gifts of about $20,000 to each parent since both parents' names are on the car title?
My parents would want to avoid the need for gift tax reporting when they reimburse me from their joint bank account. To achieve such, should they only reimburse me for the max gift tax exclusion amount per year (currently $17,000)? Or can they they reimburse me in 2 transactions from their joint bank account to make it clear each parent is using up their respective max gift tax exclusion amount for the year?

Thank you for your time.

Not A Product Question

rjs

Level 15

Since you have an agreement that your parents are going to pay you back, you didn't make a gift, so there is nothing you have to report. It doesn't matter that there is no written loan agreement. Your parents' paying you back is also not a gift, and they do not have to report the repayment. Neither you nor they have to file a gift tax return.

Since there are no gifts to report, there is nothing to split or break down. The gift tax exclusion is not involved.

Mike9241

Level 15

@Caldubs individuals who make a below-market gift or demand loan generally must report as interest income any forgone interest from that loan (IRC SEC 7872)

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Forgone interest is the amount of interest that would be payable for that period if the loan's interest accrued at the applicable federal rate (AFR) and was paid annually on 12/31 of that year minus any interest actually payable for that period.

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A gift loan is any below market (interest rate) loan where the forgone interest is in the nature of a gift. A demand loan is payable in full at any time upon the lender's demand. The borrower is treated as paying the forgone interest to the lender and the lender is treated as gifting the interest back to the borrower.

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there is this exception to reporting the forgone interest/OID

loans between individuals of up to $100K if the borrower's net investment income is under $1000

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applicable federal rate (AFR)

https://www.irs.gov/applicable-federal-rates

for gift and demand loans use the short-term AFR in effect for each semi-annual period. (for example, if the loan was made in February, you would use the Feb and Aug short-term AFR rate each semiannual period until the loan is paid or the exception is met

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Mike9241