I loaned my son the money to buy a house and have agreement in place.If his mortgage payment is < 14000, can I Gift this sum to him for year? I need to report gift?

[mastdeal]

Do I need to report Gift to IRS? Do I need to show I received interest, even if I did not?

[RichardG]

Was the total amount of the loan less than $14,000 or the mortgage payments for the year are less than $14,000?

[mastdeal]

Mortgage payment with interest was less than 14K.

[RichardG · Accepted solution]

This transaction is typically handled as follows: Parent loans child a large sum and the loan is properly documented and the mortgage recorded.  The child makes interest-only payments or small payments on the loan during the year to maintain the legitimacy of the loan.  Each year the parent forgives an amount of the loan equal to the gift tax annual exclusion amount (or double that amount if the parent is married).  That gift is reported annually by the parent on Form 709, a gift tax return.  TurboTax does not prepare this form.

It's important that the interest rate on the loan is adequate.  If the interest rate is below-market, this can trigger a gift loan situation, which presents further gift and income tax consequences for both child and parent.  Please follow this link for more information.  http://denhalaw.com/low-to-no-interest-rate-loans-to-family-be-careful/

[mastdeal]

Thanks Richard, it was very helpful. One subsequent question, if amount I am forgiving is less than 14000, do I still need to file Form 709? Both parents are planning to gift 140000 each.

[RichardG]

Yes.  Instead of each parent filing a Form 709, you can essentially use the annual gift tax exclusion of both parents on one form by gift-splitting.