Paying off a mortgage loan in India for someone else

[santhanr01]

If I pay off a mortgage loan in India for my brother/sister, do I have to report it as a gift tax return.  The amount that will be paid of directly to the mortgage lender is $50,000.

[pk]

@santhanr01 ,    The free gift amount per person per donee is US$18,000 for 2024..    Thus  , and assuming that you are married, both you are your spouse can donate  US$36,000  to your brother and again US$36,000 to his spouse.  This will be within the free limit and therefore no reporting is required.

Also note that even if you had to report ( form 706 ) , it is not a tax event -- it just counts against your life-time  credit towards Estate/Gift tax.

Is there more  can do for you ?

Namaste ji

pk 

[M-MTax]

The amount that will be paid of directly to the mortgage lender is $50,000.

Yes, that's over the exclusion for 2024 even if both you and your spouse are paying off the mortgage.

You need to file form 709 

[pk]

@santhanr01 , Agreeing with my colleague  @M-MTax ,  

(a) I stand corrected on the form -- it should have been 709 and NOT 706

(b)  I stand by  that if I assume  both  you and your brother are married,  then using free amount  you each ( you and your spouse ) can donate / gift  US$36,000 to  your brother and his spouse.    Granted I have no info on your post that suggest  that this is the case ( that both you and your brother are married  and  that your spouses will agree to this scheme ).

(c) Filing a form 709 is not a tax event at the time of the gift  -- future is unknown.

However, I do understand  that this scheme  will not work, if you are  paying off directly to the lender --- first because it is an entity  ( and not a person ),  second  we don't  know how the property is held ( jointly by your brother and his spouse  or what ).    Also I don't know if India  would consider  the gifts to  your brother and his spouse ( if) would be considered an income and be taxed.

My apologies to @M-MTax .

pk

[santhanr01]

Thank you all for your responses. So I can donate $18000 to my brother and my wife can donate another $18000 to my brother's wife without having to file Form 709? Did I understand that correctly?

[M-MTax]

So I can donate $18000 to my brother and my wife can donate another $18000 to my brother's wife without having to file Form 709? Did I understand that correctly?

You can give $18000 to your brother and another $18000 to your brother's wife without having to file a 709. Your wife can do the same. That's a total of $72000 without having to file a 709.

[rjs · Accepted solution]

@santhanr01 

Your original question said that you would pay off the mortgage for your "brother/sister." Now you are talking about your brother's wife. Who is actually on the mortgage? When you said sister did you mean sister-in-law (your brother's wife)?

To avoid having to file a Form 709 gift tax return by doing what pk is suggesting, you would have to make 4 separate gifts:

• from you to your brother
• from you to your brother's wife
• from your wife to your brother
• from your wife to your brother's wife

Each of the individual gifts would have to be $18,000 or less.

If you and your wife jointly make a gift of more than $18,000, you would still have to file a Form 709 in order to "split" the gift. The end result is the same as if you made two separate gifts, but you have to file the form.

You also said that you would make a single payment of $50,000 directly to the mortgage lender. That would make it difficult to prove to the IRS that there were 4 separate gifts, if you were audited.

Even if you have to file a Form 709 gift tax return, you will not have to pay any gift tax unless the total amount of all gifts you have made in your lifetime is more than $13.6 million (for 2024). But you still have to file the form if you make gifts totaling more than $18,000 to any one person in 2024.

A gift tax return, Form 709, is not part of your income tax return. It has to be filed separately. You cannot file a gift tax return with TurboTax.

[M-MTax]

You also said that you would make a single payment of $50,000 directly to the mortgage lender. That would make it difficult to prove to the IRS that there were 4 separate gifts, if you were audited.

I agree with this. The optimum way to do this would be 4 separate cash gifts as rjs said.