Required to File Gift Tax Form when Purchasing a Home with our Child?

[txgirl147]

My husband and I purchased a home with our daughter last year.  All 3 of our names are on the deed and on the mortgage.  My daughter lives in the home.  My husband and I paid the down payment at time of purchase and we pay the mortgage.   Are we required to file a gift tax form since we paid the full amount of the down payment, and if so, how much is the "gift"?  Is it 1/3 of the down payment since there are 3 owners?  Is it 1/3 of the purchase price of the home?  And if we pay the home off early in a few years, would we then be required to file a gift tax form for 1/3 the pay-off amount (assuming my husband and I pay off the mortgage and my daughter does not contribute)?

[M-MTax]

You will have to file a 709 gift tax return for the amount of the down payment and also for the total amount of mortgage payments you make each year. You'll have to file a 709 if and when you pay off the mortgage balance if it's over the annual exclusion amount.

[PaulaM]

If you and your husband gave a gift of greater than $17k each, then you would be required to file a gift tax return (Form 709). Although the return is required if over that amount, the gift tax only kicks in after lifetime gifts exceed $12.92 million in 2023.

Form 709 Instructions

[txgirl147]

Thank you for your response.  I read the 709 instructions and I do understand that we have to file the form since our gift was larger than the $34,000 annual exclusion (total for my husband and I).  What we are trying to determine is how much the gift total is.  Since my husband and I are owners of the property along with our daughter, is our "gift" to her 1/3 of the down payment that was due at closing?  And the poster above mentioned including the mortgage payments (that were paid by my husband and I) in the total amount along with the down payment.  Would we include 1/3 of the mortgage payment each month?  Just principal or principal and interest?

Thanks for your help!

[M-MTax]

If both you and your husband are on title and there are three owners..........you, your husband and your daughter.....then the gift would be the 1/3 for the purchase price you paid for her share and the mortgage payments........principal and interest.

[txgirl147]

Thank you!  And, yes, all 3 of us (myself, my husband and my daughter) are on the title.  And just to clarify, since the home was purchased last year, the gift amount is 1/3 of the amount of the down payment at closing (purchase price minus the mortgage) plus 1/3 of the monthly mortgage payments that were made last year?

[PaulaM]

Yes, that is how I understand it. Your gift is her 1/3 share of the down payment, plus her 1/3 share of the mortgage payments (principal and interest portion). 

You haven't gifted her 1/3 of the mortgage amount yet because that amount hasn't been paid yet. 

[txgirl147]

Thanks for your reply!

[DaveCFP]

Because you're on the deed and mortgage it does not appear you need to do a "Gift Tax" return for your daughter...you're obligated to pay a debt and have an interest in real-property yourself...you pooled resources to buy something you participate in equally.  There are a few details missing from the story:  How much did you put toward the down-payment?  Does she pay less than 1/3 the mortgage? How much is the mortgage monthly?  What happens if you and your hubby move out/pass away?  Is it Tenants in Common or JT With Rights of Survivorship or Life Estate for Mom and Dad in Daughter's name 100%...But I'm very comfortable asserting this is a "No Gift" situation.

[DaveCFP]

I misread one piece...you're on the deed and mortgage, but you don't occupy the house, it is a house just for her and you're paying the entire monthly note?  Good deal for her...that may be a gift event...however, I still think the fact that you have a debt obligation and ownership may eliminate the gift tax implications.  She can't sell the house on her own and walk away with the proceeds...it isn't 'just her house outright' 

For a gift to be a gift, the recipient has to have unfettered control of the asset.  In this case, she does not.    

[txgirl147]

My husband and I treat it as a second home/vacation home.  Once he retires, we plan to spend more time there.  My daughter does currently live there.  My husband and I pay the monthly mortgage payments.  She does not contribute to the mortgage, but she pays other bills (utilities, HOA fees, property taxes, insurance).  The mortgage is about $1400/month and the down payment (paid entirely by husband and I) was a little over $200,000.  It is currently set up as JT with Rights of Survivorship. 

We are getting conflicting answers on whether the gift tax form is required.  We were told that once we pay off the mortgage, if she were to transfer her 1/3 back to us (if she should move out, if we want to put the property in a trust, etc), that she would be required to fill out the gift tax form since she would be gifting her 1/3 back to us.  This is what got us wondering if we needed to file the gift tax form for the purchase since we have contributed all funds towards real estate that we jointly own with her.

[brownda1]

It was not an IRS gift when she lived in your first home; same with her living in your second home.  If you take your name off the deed, transferring the property into her name, that will be a gift.  Ask again then.

[M-MTax]

If you take your name off the deed, transferring the property into her name, that will be a gift.  

It's a completed gift since the parents paid the daughter's share and technically the daughter has a 1/3 interest which she could sever at any time and sell........sue to partition. 

[DaveCFP]

I'm getting more comfortable with my "No Gift" diagnosis...you paid $200,000 to a mortgage company, right?  Please confirm that you did not give your daughter $200k to give to the mortgage company.  Moreover, she cannot sell her 1/3rd separate from you, the parents  everyone is on the hook for the debt in a shared debt situation.  If you parents die together in a plane crash, she is responsible for a debt.  Moreover, if she moves out under the cover of darkness one night - you and your hubby on on the hook for a debt.  I think about this like the 3 of you bought a rental property that she happens to partially own and occupies as renter.  If y'all wanted to get really fancy about it you could even have a lease where she pays you $1400 per month (less than $17,000 per year) and all three of you be depreciating the property.  

[M-MTax]

Please confirm that you did not give your daughter $200k to give to the mortgage company. 

The mortgage company doesn't get the money, the seller(s) of the property do.

she cannot sell her 1/3rd separate from you

She can sue to partition and sell her 1/3 share.

If you parents die together in a plane crash, she is responsible for a debt. 

Nope, not personally responsible since she didn't sign the note. The mortgage lender can foreclose on the property though.

if she moves out under the cover of darkness one night - you and your hubby on on the hook for a debt.

They are anyway since they signed the note. You do know that a mortgage consists of a note that is a personal promise to repay combined with a lien against the property right?

If y'all wanted to get really fancy about it you could even have a lease where she pays you $1400 per month (less than $17,000 per year) and all three of you be depreciating the property. 

Yeah, that's is definitely NOT a possibility given these facts.