Understanding Gift taxes for mortgage downpayment
You are using interchangeably borrow/loan and gift. They are very different. For the mortgage company, they would prefer that the money from friends and family be a gift. If it is a loan, then you  have an obligation to pay it back. If they see money added to your bank accounts in the months just before getting the loan, they will ask for the source of the money. Anything you claim as a gift will be required to be documented by you and the person making the gift. You don't want to lie about it, and have the other person lie about it. They will make you sign documents, if they catch you in a lie you can lose the loan, or be prosecuted for fraud. If the money from friends and family is a loan, the payments for the loan will impact the amount of money you can borrow. From the view of the IRS the gift tax only comes into play if during one calendar year a person makes a gift to somebody else of 14,000 or more. There are two points related to this. It is person-to-person. So if your dad gives you 14K, and your mom gives you 14K, and your dad gives your wife 14k and your mom gives your wife 14K; everything is fine. So two people can give 2 people 56K in one year. Please use separate checks to make it clear to the IRS. If somebody gives a gift above the exclusion limit for the year, they will have to complete IRS form 709. This essentially removes the excess amount from their life time exclusion, in other words from their estate.  Nothing to worry about from the IRS. The bank wants to see the documentation. Also you are not a charity, so they can't claim it as a donation. Why do you have 6,000 in cash sitting around. The mortgage company will want an explanation for all large deposits so you better have a good explanation. From the IRS FAQ on Gift Taxes: What can be excluded from gifts? The general rule is that any gift is   a taxable gift. However, there are many exceptions to this rule.   Generally, the following gifts are not taxable gifts. Number 3 on the list is the one you care about.
I'm a long way from an expert on this, but it seems to me you can loan your fiance enough money to pay off her loans, and that incurs no tax penalty. When you are married you can write off the loan without a tax penalty since she is your spouse. I would expect that you can reclassify a gift as a loan for a tax year you haven't yet filed for - or she can give you the money back and you immediately make her a loan for the same amount. As the comments and this question would indicate, a loan at below an approved rate would be considered a gift. However you do appear to be able to loan her the money at an approved rate, and gift her the interest payments, which should be less than the gift tax limit. You would need to write up a loan document. Once you are married you should be able to make another gift to pay off the loan. "I transfer all their funds to my bank account Are they paying tax on that transfer?  Gifts under $14,000 are excluded from taxation in the US, but they're going going to have a hard time arguing that it is a gift (since they expect it back).  The taxes are almost certainly going to exceed the amount you can make from your investments in the short term, and if they aren't paid then your ""clients"" are going to be in hot water with the IRS. You need to have something set up that establishes you as merely managing the funds, and not receiving them personally as a transfer.  The other answers have good suggestions." First, the recipient is not responsible for any gift tax, the giver pays the tax. The gift is not taxable income to the recipient and so the recipient does not pay any income tax on the gift either. More than that, and they tap into their lifetime exclusion, currently (2015) $5.43M. All that's needed is a simple form. More convoluted, would be to lend you the full amount and then forgive $14,000 per year. Unnescesary paperwork, in my opinion. Lenders pay attention to where your down payment money comes from. If they see a large transfer of money into your bank account within about a year before your purchase, this WILL cause an issue for you. Down payments are not just there to make the principal smaller; they are primarily used as an underwriting data-point to assess your quality as a borrower. If you take the money as loan, it will count against your credit worthiness. If you take the money as a gift, it will raise some other red flags. All of this is done for a reason: if you can't get a down payment, you are a higher credit risk (poor discipline, lack of consistent income), even if you can (currently) pay the monthly cost of a mortgage.  (PS - The cost of home ownership is much higher than the monthly mortgage payment.) Will all this mean you WON'T get a loan? Of course not. You can almost always get SOME loan. But it will likely be at a higher rate than you otherwise would qualify for if you just waited a little bit and saved money for a down payment.  (Another option: cheaper house.) EDIT: The below comments provide examples where gifts were/are NOT a problem. My experience from buying a house just a few years ago (and my several friends who bought house in the same period, some with family gifts and some without) is that it IS an issue. Your best bet is to TALK, IN PERSON with an actual mortgage broker in your area who can go through the options with you, and the downsides to various approaches. First of all, in the U.S., no Federal gift tax has to be paid by the recipient of  the gift; it is the donor who has to pay gift tax, if any is due. Nor does the recipient have to pay Federal income tax on the gift; it is not considered taxable income.  I do not believe that any states view matters differently for the purposes of state gift and income taxes, but I am always ready to be disabused of any such fondly-held notions. If your parents were required to pay any gift tax, that would have been at the  time the gift was originally given and only if they gifted more than the maximum allowable exemption per person for that year. Currently the exemption is $14K from each donor per recipient per year. Additional gifts were made by your parents to you during your minority when your parents paid any income tax  due on the distributions in your account, but these amounts would unlikely to have been larger than the exemption for that year. In any case, gift tax is  none of your concern. If you have been declaring the income from distributions from the mutual funds all these years, then the only tax due on the distributions from the funds in 2013 is the Federal income tax for the 2013 tax year (plus a special assessment of Medicare tax on investment income if your income is large; unlikely based on your question and follow-up comment).  If you sold all or part of your shares in the funds in 2013, then you would need to calculate the basis of your investments in the fund in order to figure out if you have capital gains or losses.  Ditto if you are thinking of cashing out in 2014 and wish to estimate how much income tax is due. But if you want to just hang on to the funds, then there is no immediate need to figure out the basis right away, though taking care of the matter and keeping in top of things for the future will be helpful. As a final note, there is no tax due on the appreciation of the fund's shares. The increased value of your account because the fund's share price rose is not a taxable event (nor are decreases in the account deductible). These are called unrealized capital gains (or losses) and you do not pay tax on them (or deduct them as losses) until you realize the gains by  disposing of the property. I'm not familiar with US tax law in particular, but the general principle around the world tends to be that interest-free or low-interest loans are taxed as gifts of the difference between a commercial interest charge and the actual interest charged. You could also forgive ($13,000 - waived interest) of the loan each year. Also, remember that there's a lifetime exemption (covering inheritance as well) of $1,000,000 which can be used for any amounts over the $13,000. Doom and gloom.  Everything adjusts.  Less tax break here compensated by lower overall tax rates.    Actually, Realtors have less concern with this then you would think.  Those really concerned are bankers.  The financial industry has been messaging Americans for years that mortgage deductions are the best thing in the world.  They are just another way to promote bank loans. "A Tweep friend asked me a similar question. In her case it was in the larger context of a marriage and house purchase. In reply I wrote a detail article Student Loans and Your First Mortgage.  The loan payment easily fit between the generally accepted qualifying debt ratios, 28% for house/36 for all debt. If the loan payment has no effect on the mortgage one qualifies for, that's one thing, but taking say $20K to pay it off will impact the house you can buy. For a 20% down purchase, this multiplies up to $100k less house. Or worse, a lower down payment percent then requiring PMI.  Clearly, I had a specific situation to address, which ultimately becomes part of the list for ""pay off student loan? Pro / Con""  Absent the scenario I offered, I'd line up debt, highest to lowest rate (tax adjusted of course) and hack away at it all. It's part of the big picture like any other debt, save for the cases where it can be cancelled.  Personal finance is exactly that, personal. Advisors (the good ones) make their money by looking carefully at the big picture and not offering a cookie-cutter approach." "you have 2 concerns: the lender and the irs. either way you should be fine the lender just wants to know that you have no legal claim to the property or other compensation. simply signing a gift declaration should clear that up, making this a ""gift"" from their perspective.  they probably have some standard form you can sign. otherwise, just a simple note that says ""i, so-and-so, gave whats-er-name x$ on the y of june, 20## as a gift, with no expectation of repayment"".  then, only way you could get charged with ""fraud"" is if you seek compensation for this ""gift"" in the future.  even then, the bank would probably have to find out about the compensation and complain pretty strongly to get a prosecutor interested in a small dollar misrepresentation case with little or no provable intent. a bigger concern is the bank being uncomfortable with the future renter also giving a gift. that just ""smells weird"". and bankers hate anything weird. it probably won't prevent the mortgage from getting approved, but it might delay the underwriters a few days while the wring their hands about it. the irs is a bit more complicated. they tend to be the ""heads we win, tails you lose"" types.  assuming they consider this a gift, then you are fine, since it is under the annual gift exclusion (~14k$ these days); you don't even have to tell them about it.  however, if she gives you a large financial gift in the near future, they may decide to interpret those two events as a single transaction turning this into a no interest loan. even then, you should be fine since the irs generally doesn't care about loans under 100k$ with ""missing"" interest under 1k$/yr. since this is a small loan and interest rates are so low, you have no worries. further irs reading on gift loans: https://www.law.cornell.edu/uscode/text/26/7872" "You are ""pool[ing] the sales from both houses as downpayment on the new house."" But they are going to pay you rent.  Your question as it stands, just opens more questions. What, exactly is the ownership of the new house? If your's (and your wife's) was the money a gift?  Ignoring the gift, if that's what it is, and if the in-law suite is 25% of the house value, you have a rental. You claim 25% of the expenses, including property tax and mortgage interest, along with 25% of the utilities, unless their part has its own meters.  That's a start, if you add details, I may edit my answer. (Not to be pedantic, but whose parents are they. They can't be ""our in-laws,"" can they?)" "The IRS doesn't tax ""increased wealth"" They tax Revenue -- income.  If this money or property came to you as a gift, you would owe no tax on it but the giver probably would owe gift tax.  If it came to you as a loan, you would owe no tax on it but the lender would owe tax on any interest you pay (and must charge at least minimal interest, though they could give that to you as a gift and possibly not have it be taxable). But if came as payment for goods or services or investment or anything of that sort, and you aren't demonstrably tax-exempt, it is income and you are responsible for declaring it as such and paying tax on it." You say that you inherited the money from your mother, and are now paying these people using money that is already yours.  Because of that, the money is considered a gift from you to them, and the fact that you are doing it in accordance with your mother's wishes doesn't change that.  For it to be considered a bequest from your mother's estate directly to these beneficiaries, it would have had to be handled via the regular by-the-book inheritance procedure and been given to them directly rather than bequeathed to you with informal instructions to pass it on to them. If one gives another person more than $14K in any calendar year, there is the potential gift tax issue to address. I'll explain why it's more a matter of 'addressing' than 'paying', as there are a number of legal ways around this.  Form 709 is what you'll use. In the end, you'll report the gifts over $14K but no tax will be due as they'll simply go against your lifetime gifting allowance, currently $5.49M per person.  Note, 2 ways to avoid even this obligation. If you have a spouse, you have a combined $28K/yr gifting (per recipient) with no reporting required. Similarly, if the recipient has a spouse, you can gift them $14K. i.e. couple to couple can gift $56K/yr. Last, why not just gift $14K before December, and in January, give the second installment? If I had money coming in separate from a will, I'd be happy that you honored a verbal request, and wouldn't be so greedy as to expect you to risk a dime of your own finances to transfer the funds immediately. In 2015 there's a $5.43M (That's million, as in 6 zeros) estate exemption. Even though it's $14K per year with no paperwork required, if you go over this, a bit of paperwork will let you tap your lifetime exemption. There's no tax consequence from this.  The Applicable Federal Rate is the minimum rate that must be charged for this to be considered a loan and not a gift. DJ's answer is correct, otherwise, and is worth knowing as there are circumstances where the strategy is applicable. If the OP were a high net worth client trying to save his estate tax exemption, this (Dj's) strategy works just fine. It is correct, in general. Gift tax is indeed at 35%, but you have the first 14K of your gift exempt from it for each person you give to, yearly (verify the number, it changes every year). You can also use your lifetime exemption ($5.45M in 2016, subject to change each year), but at the amounts you're talking about it still will not be enough. Charitable (501(c)) organizations, paying for someone's tuition or medical expenses (directly to the providers), political donations, transfer between you and your spouse - these are all exempt from gift tax. If you have 10 millions to give, I'm sure you can afford a $200 consultation with a EA/CPA licensed in your state. looks like the US tax system needs an overhaul. You cant charge yourself arbitrary amounts to even out your bottom line.  Wel you and I cant, but apparently we just need to make more money to do so....thanks BK for showing me the way!!