IRS gift question

[Chris3]

Does the IRS consider money that a parent gives to a child for the purposes of purchasing/constructing a home that they will live in with that child a gift? Can it legally be claimed as such?

[Rick19744 · Accepted solution]

A taxpayer can gift anyone up to $14,000 with no reporting requirements.  So this means that both Mom and Dad can give a child (or anyone for that matter) $14,000 each with no reporting requirements (total of $28,000 in this example).  This holds true for each year and this amount does get indexed for inflation.

Anything over that amount and the donor (Mom and Dad) must file a gift tax return.  Just because they file a gift tax return does not mean they owe any gift tax.  Each taxpayer has an exemption amount of $5,450,000 (current law) before any gift tax is owed.  This is a lifetime exemption and gets indexed as well under current law.

So depending on the amount of the gift, your parents may or may not have any reporting requirements, but there will not be any tax implications.

[Chris3]

I am familiar with the gifting tax guidelines, but is that scenario a "gift"? The home will become the "gifter's" primary residence and will be much more than the $14,000 and be reported as a gift by the parent. Is there any risk to the receiver or giver from the IRS not agreeing on an audit down the road that it was a gift, since the parent received a place to live from the transaction?

[Rick19744]

Doesn't matter how you use the $$ that are gifted - it is still a gift.  Should not be any issues with the IRS if what is gifted is cash as there is should not be any dispute on the FMV of cash.

I am assuming that the home will be titled in your name.  Additionally, once the house is built and they live there, the IRS could contend that the parent is receiving a gift from you in the form of free rent, however, that value I would assume is less than the $14,000 exemption.  I don't see this as an issue here.

[Chris3]

Thanks!