transfer money to mom and back

Posted by Hulacir on September 14, 2009, 11:36 pm

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Hi, I am helping my mom to buy a house. I am thinking about
transferring 100K to her bank account. If she ends up not buying a
house, I will transfer the money back to my bank account. Is there any
tax consequence for this? Also, what is the best way to transfer money
back and forth?

Thank you very much.

fff

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Posted by Seth on September 15, 2009, 12:24 am

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>Hi, I am helping my mom to buy a house. I am thinking about

>transferring 100K to her bank account. If she ends up not buying a

>house, I will transfer the money back to my bank account. Is there any

>tax consequence for this? Also, what is the best way to transfer money

>back and forth?

If the house is bought, who owns it? If your mom does, then you need
to consider gift tax.

If it isn't bought, the $100K is probably best considered a loan, so
there would be imputed interest.

I'd recommend not transferring the money except at closing, the seller
doesn't care whether they get 2 or 3 cashiers checks.

Seth

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Posted by removeps-groups@yahoo.com on September 15, 2009, 12:08 pm

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> Hi, I am helping my mom to buy a house. I am thinking about

> transferring 100K to her bank account. If she ends up not buying a

> house, I will transfer the money back to my bank account. Is there any

> tax consequence for this? Also, what is the best way to transfer money

> back and forth?

Read up on the gift tax at
http://www.irs.gov/businesses/small/article/0,,id=108139,00.html.
Basically you can give her 13k. Above that, the giver pays gift tax
(which is expensive) or they use up their $1 million lifetime
exemption. Using up the lifetime exemption decreases your estate
exemption when you die. And if you are married you give 26k (from you
and your spouse), and if she is married she can get 52k. There's talk
about whether there should be 4 checks of 13k each, 2 checks of 26k
each, 1 check of 52k -- but start a new thread if you want to know
more.

You can also loan her the difference and charge her interest at the
AFR rate at http://www.irs.gov/app/picklist/list/federalRates.html,
which for September looks to be 4.38% if payments are monthly -- and
that's with zero points -- though she may have to pay $300 in title/
escrow fees to secure the loan. You can then forgive 13k, 26k, or 52k
of the loan each year.

Finally, what if you and her own the house jointly? Could it qualify
as your second home, in which case you can deduct the mortgage
interest? That is, she pays half of the mortgage and you pay half,
and so each of you gets to deduct half of the mortgage interest.

Perhaps your mom does not have much income. In this case, maybe you
can buy the house outright as your second home, assuming you don't
already have a second home, and deduct the mortgage interest. She can
live there. There was talk on this newsgroup about imputed rent, but
I don't remember the details, though I think the IRS won't charge
imputed rent.

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Posted by D. Stussy on September 15, 2009, 9:13 pm

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> > Hi, I am helping my mom to buy a house. I am thinking about

> > transferring 100K to her bank account. If she ends up not buying a

> > house, I will transfer the money back to my bank account. Is there any

> > tax consequence for this? Also, what is the best way to transfer money

> > back and forth?

> Read up on the gift tax at

http://www.irs.gov/businesses/small/article/0,,id=108139,00.html.

> Basically you can give her 13k. Above that, the giver pays gift tax

> (which is expensive) or they use up their $1 million lifetime

> exemption. Using up the lifetime exemption decreases your estate

> exemption when you die. And if you are married you give 26k (from you

> and your spouse), and if she is married she can get 52k. There's talk

> about whether there should be 4 checks of 13k each, 2 checks of 26k

> each, 1 check of 52k -- but start a new thread if you want to know

> more.

(Opinion only:)
A single check from a joint account of the married donors with BOTH names
of the receiving married couple (in the "pay to the order of" section) may
be sufficient for $52k under the splitting rules. Checks from singly-owned
accounts to singly-named recipients are where things run into problems (or
need multiple checks). Community property issues may also affect the
quantity of checks needed.

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Posted by Jon Gallo on September 27, 2009, 2:30 pm

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> Hi, I am helping my mom to buy a house. I am thinking about

> transferring 100K to her bank account. If she ends up not buying a

> house, I will transfer the money back to my bank account. Is there any

> tax consequence for this? Also, what is the best way to transfer money

> back and forth?

> Thank you very much.

> fff

> --

This reminds me of the Bar Exam gift tax question back in 1967 when I
graduated from law school. You have wheels within wheels here.

The first issue is whether this is intended to be a gift or a loan. If you
have signature authority over your mother's account and you do not expect to
be repaid (you intend it to be a gift), transferring the money to her
account is an incomplete gift for gift tax purposes since you have retained
the ability to transfer the money back to your account. The gift would be
complete for gift tax purposes upon the first to occur of (i) your mother
withdrawing the money before you transfer it back or (ii) using the money as
part of the purchase price. There would be no gift at all if you transfer
it to an account where you have signature authority and then transfer it
back to yourself.

If you do not have signature authority, it would be a completed gift at the
time of deposit unless your mother was legally obligated to transfer it back
to you upon your request. (BTW: whether or not you have signature
authority, if the money stays in an interest bearing account and you do not
transfer the interest back to yourself, the interest would be a gift even if
you transfer the original $100,000 back to yourself.)

Assuming that it is intended to be a gift (which would occur on the first to
occur of your mother withdrawing the money or the close of escrow if it is
used to puchase a house) you have a present interest annual exclusion this
year of $13,000. If you are married and your wife agrees to gift split,
there would be two annual exclusions or $26,000. The balance would
constitute a taxable gift and would be applied against your $1,000,000 gift
tax credit (or applied equally against you gift tax credit and your wife's
gift tax credit if you are gift splitting.

If it is intended to be a loan, it should be documented as such at the time
that it is used as part of the purchase price or withdrawn by your mother.

In fact, it is really a good idea for you and your mother to document what
the deal is before you transfer the money to her account. It makes things
simpler and avoids misunderstandings.

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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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