What if I receive a gift for a downpayment on a house, but return the gift within a short period?

[varanasi1997]

goal is to access cash for a downpayment, if our sale hasn't closed yet.  Want to avoid adding to lifetime gift tax/ estate tax penalty for the person we are borrowing from.

[Carl]

What you describe is not a gift in any way, form or fashion. It's a loan. You don't pay taxes on  borrowed money, because it's not "your" money. However, if you pay interest on that loan, then the recipient of that interest has to report the interest they receive from you, as taxable income.
You may (or may not) also find that a reputable lender will not approve your mortgage either, as you having to pay back the loan for the down payment is a liability that counts against you from the mortgage lender's perspective. Generally, that down payment is expected to be "your" money. When the lender is pulling your credit, they're going to want to know where you got that down payment from. If the down payment is truly a gift, then they will most likely want legally enforceable paperwork to indicate that, and that you are under no obligation to pay it back.  If the "gift" is over 14K to any one individual in a tax year, then the giver of the gift has to file a gift tax return with the IRS - but you already know that I take it.

[varanasi1997]

Thanks so much for the quick answer- I get it, you cannot have it both ways! either it's a gift or a loan-

[Carl]

My sister-in-law experienced something akin to this, and learned the hard way. She was looking to buy a $150K house, for which she did have the income to qualify for the $120K loan after putting down the required $30K. She borrowed the down payment money from her mother and deposited it in her savings account. When the bank pulled her credit report and other financial information, they of course asked about the sudden $30K increase in her net worth. It didn't matter that she had the income to afford the payments. Her loan application was disapproved. It was a real effort for me to hold my tongue and not say, "I told you so." 🙂

[varanasi1997]

thanks, I'm in conversation over this with my mortgage broker, so it's all out on the table already... thanks for the comment

[Carl]

Sounds like you're handling it the best way possible. Just remember this when it comes to what you and broker talk about and "agree on".  IF IT"S NOT IN WRITING, THEN IT DID NOT OCCUR.