Homebuyers, Take Note: IRS Gift Tax Exclusion Remains at $14,000 for 2014
If you're getting help with the down payment from family or friends, keep a close eye on the IRS gift tax exclusion.
If you’re hoping to buy a home in 2014, and getting help with the down payment from family or friends, it’s in your interest to keep a close eye on the IRS gift tax exclusion. That’s the maximum that someone can give to you, individually, before having to file a federal gift tax return.
The exclusion amount was $14,000 in 2013, and will remain unchanged for 2014, according to a recent IRS press release.
It’s important to understand that the amount of this exclusion isn’t as limiting as you might think. Let’s say, for example, you’ll be getting a financial gift from your parents. Each of them can separately give you $14,000 without their having to file a tax return. In addition, if you’re buying the house with someone else, and your parents are feeling exceptionally generous, each of them can separately give your cobuyer $14,000. (It doesn’t matter whether there’s any family relationship between giver and recipient – although gifts between spouses need not be reported at all.)
Also, there is no immediate penalty if someone decides to give you more than $14,000. He or she will not have to pay tax on that amount – just file a return with the IRS indicating that the gift occurred. It will become financially significant only at the giver’s death, at which time it figures into calculations of estate tax, as described in “The Federal Gift Tax.”
A final note: In case your lender wants proof that the gift is truly a gift and not a loan, it will help to have a letter from the giver confirming his. Nolo provides a free “Sample Gift Letter.”