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Can you help the kids afford the house?

Buying a first home is a huge adult accomplishment. Unfortunately, it’s also an expensive one.

If you find yourself in the lucky position to help your kids or grandkids (or anyone else) purchase a home, you may be wondering if there are tax implications to your generosity. The answer is yes… and no.

The IRS has a limit to how much money you can gift each year before it becomes a taxable event. For 2022, that amount is $16,000. If you’re married, each of you can give the same person $16,000 (so, $32k total). If that’s all they need, great! But what if they need, say, $250,000 for their down payment?

If you’re going to gift a large amount of money all at once, it seems like it would trigger the gift tax, right? Not quite. Yes, it may well be over the annual gift tax exemption, but you may still be able to do it tax free if you haven’t reached the Lifetime Gift Tax exclusion which is currently $12.06 million per person (or $24.12 million for a married couple).

To prevent nefarious money laundering activities, it will be required for the recipient of your gift to prove where the funds came from. This can be done with a gift letter explaining who’s giving the money, who’s receiving it, and that it is in fact a gift and not a loan.

So, to recap: you can gift $16,000 to anyone every year without tax consequences. If you want to gift more, you can do it as long as you file a gift tax return with the IRS so they can track it against your Lifetime Gift Exclusion limit of $12.06 million.

* This isn’t financial or legal advice. Consult an attorney or financial planner before you make large gifts.