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rated:
Hi all,

I posted here a while back asking for advice on potentially leveraging my parents' financial situation to purchase a place in NYC (https://www.fatwallet.com/forums/finance/1434699).  I got a lot of good advice at the time.  Since I haven't taken any action on this front yet but my family's plan to live in NYC hasn't changed I wanted to get this forum's advice at this stage based on our current situation:

The primary question: If my parents want to transfer a significant amount of money to me to assist with purchasing the home, what is the best way to do so while minimizing taxes?  The options that have occurred to me (eliminating my idea from the previous post):
1) Parents give max allowable under gift tax rules per year for as many years as it takes to get to the amount we agree on
2) Parents pay our rent (potentially in combination with #1 to increase the effective amount they can transfer per year.  - Is this legal? Or will the rent they pay be treated as a gift as well for tax purposes?

In either scenario I would then pay my parents back (with some agreed to interest) via gifting until we're back at even.

Some key info:
Annual HHI: ~375k
Current Savings: ~180k
Current Loans: Nothing significant - a few thousand in revolving credit
Current Rent: ~4k (Likely to go up to ~6k in the next year as we move to a 2 bedroom to accommodate child
Dependents: We have a 3 month old

Potential home purchase price: ~1.1 M - 1.5M (depending on timing over next 8 years or so)
Potential assistance from parents: TBD. Let's say more than what is allowable under gift tax rules for a single year and less than the entire price of the home. Don't think the exact amount is relevant for the purpose of my question.  

To head of some of the topics that came up last time:
- No I do not feel entitled to this money. My parents have offered and I feel it appropriate to explore the financial implications of taking them up on the offer.
- I have taken the "pride in earning one's own" perspective into consideration - it doesn't really appeal to me - I'm happy to take my parents assistance if I feel it will be beneficial to my family (parents included).
- I have taken the "Parents will want to meddle" advice into consideration. I feel confident my relationship with my parents is such that this won't be an issue.
- I have taken the suburb alternative into consideration and will continue to do so. But I want to explore all options for living in the city as the primary goal. The suburbs aren't going anywhere.
- This is still a mid to long term decision. I have no intention of buying in the next year or two but I like to plan ahead and know my options. Also the tax laws are also such that either of my potential approaches requires starting a bit ahead of time.

As always, appreciate everyone's advice.

Thank You

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rated:
What is your parents net worth?

Gift / estate taxes are only for high net worth estates.

rated:
jerosen said:   What is your parents net worth?

Gift / estate taxes are only for high net worth estates.

  I'm aware that's the case for estate taxes - but my understanding was that above the gift exemption any amount given to me by my parents would be taxable as income. That's what I'm referring to as "gift tax."

rated:
br435 said:   
jerosen said:   What is your parents net worth?

Gift / estate taxes are only for high net worth estates.

  I'm aware that's the case for estate taxes - but my understanding was that above the gift exemption any amount given to me by my parents would be taxable as income. That's what I'm referring to as "gift tax."

You need to read up more on gift tax. Here is one link
Each year, the amount a person gives other people over the annual exclusion accumulates until it reaches the lifetime gift tax exclusion (~5 million). The giftor needs to file a gift tax return to indicate this but there is no tax paid/owed till they reach the life time exclusion.
 

rated:
Are you planning on using the money your parents give you as a down payment to reduce the size of your loan, or are you planning on putting the same amount down no matter what the parents give and putting their gift in the bank/investing it?

rated:
fwuser12 said:   
br435 said:   
jerosen said:   What is your parents net worth?

Gift / estate taxes are only for high net worth estates.

  I'm aware that's the case for estate taxes - but my understanding was that above the gift exemption any amount given to me by my parents would be taxable as income. That's what I'm referring to as "gift tax."

You need to read up more on gift tax. Here is one link
Each year, the amount a person gives other people over the annual exclusion accumulates until it reaches the lifetime gift tax exclusion (~5 million). The giftor needs to file a gift tax return to indicate this but there is no tax paid/owed till they reach the life time exclusion.

  Really appreciate this reply. Somehow I missed this in my previous research on this matter.  In that case my parents' net worth shouldn't matter as I understand since they won't be giving me over 5 million at this stage regardless. If their net worth gets there in the future we can cross that bridge for inheritance purposes separately.

rated:
BostonOne said:   Are you planning on using the money your parents give you as a down payment to reduce the size of your loan, or are you planning on putting the same amount down no matter what the parents give and putting their gift in the bank/investing it?
  The general idea would be to use it towards the down payment - the down payment amount may still be the same (and leave the loan the same) but may allow us to purchase earlier by letting us hit the down payment amount we'll need sooner.  (Or at the very least make our offers more competitive in what's a very difficult market).

rated:
The gift tax may be applicable at the state level.

rated:
Your parents can loan you the money, with below market interest rate (see applicable federal rate) that you repay.

rated:
ellory said:   The gift tax may be applicable at the state level.
  Generally, yes. But with OP being in NY (and I am assuming parents are in NY), no. linky 

rated:
If you are planning to pay it back with interest just call it a loan so you don't have to mess with gifting.

rated:
Where specifically in NYC are you looking to purchase? You give a price range, but also give a time range of up to 8 years. Seems like a long horizon. Where specifically are you now?

rated:
You seem to have a good income and savings. Why don't you seek a professional help? It may be worth it if he can save you money from paying taxes. Free advice from here doesn't mean you will save money. Estate/Tax attorney probably can do better than most of us here. Use your time wisely.

rated:
ellory said:   The gift tax may be applicable at the state level.
  Is it based on residence of the person giving the gift? My parents live in NJ which seems to be more restrictive than NY - thought we're still not likely to come in above that lifetime max.

rated:
motsuka said:   If you are planning to pay it back with interest just call it a loan so you don't have to mess with gifting.
  They'd then have to pay taxes on the interest - and based on the comments so far it seems that gifting doesn't present any tax issues with the amounts we're likely to be talking about.

rated:
sailorbob said:   Where specifically in NYC are you looking to purchase? You give a price range, but also give a time range of up to 8 years. Seems like a long horizon. Where specifically are you now?
  Still TBD but UWS or Morningside in Manhattan seems likely.  The price range is partially reflective of the time horizon - prices rise pretty quickly here.  The time horizon reflects how long its likely to take us to save enough for the downpayment (assuming some emergency fund) considering our current expenses and the high cost of child care (daycare is ~3000 a month).

rated:
docjoo said:   You seem to have a good income and savings. Why don't you seek a professional help? It may be worth it if he can save you money from paying taxes. Free advice from here doesn't mean you will save money. Estate/Tax attorney probably can do better than most of us here. Use your time wisely.
  I'm not really sure I follow what the professional help would do in this case. The goal is to avoid paying taxes on the money my parents give me - not my own income taxes which are rather straightforward.  If/when it comes to my parents' overall estate we may indeed look for professional help, but that's something more in their court and not something I intend to press on (though naturally I'll help when/if they're ready to look at it).

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