The current housing market burns red hot! If you’re in the business of shopping for your first home you’re probably experiencing sticker shock. Buyers seemed to have lost their minds, outbidding each other, offering ten or twenty percent above the sellers’ asking price. It’s not even unusual anymore for sellers to receive cash offers for their property. With the astronomical prices of houses a moving target, it becomes difficult for home buyers to save or have enough money to make their deposit. Let’s talk options,
Ask for a Gift
In a recent report conducted by ServiceLink, a mortgage lending company, 28% of individuals reported that they received money as gifts or inherited money which they used to finance purchasing their home.
While I’m not going to bore you with the intricate details, let’s talk tax! In asking your parents, grandparents, family members or friends, educate them on the tax benefits of making a gift towards your purchase. The gift tax in the federal code in 2021 allows you to receive a gift of $15,000.00 from one person, or $30, 000.00 from your parents as a couple. The tax rules exclude those amounts from federal gift taxes, and they do not need to be reported.
Well, if you are church going, you might have to report you 10% in tithe, but that’s another talk show.
Let’s get clever here. Suppose your parents or family members don’t have $15,000.00 per person to give you but have some stock investments they have held for over one year. They can gift the stocks to you and then you can sell them, acquiring the funds to purchase your home.
Let’s say your parents are in a higher tax bracket than you, when the stocks are gifted to you, you can then sell them and be taxed at a lower rate than if your parents sold the stocks and gave you the proceeds. Depending on your situation the tax news may get even better! This year, individuals with taxable income of $40,401.00 or $80, 801.00 as a couple, pay no capital gain tax on stocks.
If you decide to provide a gift in the form of cash, be prepared to provide a gift letter to the mortgage company explaining your relationship and the source of your gift. In the end I say, call your parents, grandparents or close friend, ask for the gift, then call your accountant and go figure it out!
Non- Occupant Co- Borrower
While I am not a big fan of this option it does provide assistance if you are seeking help to purchase a home. Instead of asking a family member to be a co-signer, you can ask them to consider being a non- occupant co- borrower. You might be wondering what’s the difference? As a non-occupant co-borrower, you are entitled to share in the equity when the property value increases and the property is sold.
Also, as a non-occupant co-borrower you may qualify to deduct mortgage interest on your tax return even though you do not live on the property. As a co-signer, you are not entitled to equity or mortgage interest deductions. The risk with this option is that the primary borrower does not make the monthly payments and defaults on the mortgage.
I have decided to add a new section to Money Monday’s called “ what’s up!”. Basically, it is something very important I think you should know and may be unrelated to the main article. Today’s what’s up is about 529’s (Qualified Tuition Plan). A 529 is an investment plan that allows you to stash away money to grow tax free and that can be withdrawn tax free as long as the funds are used for qualified educational expenses. The latest news is that 15 states are offering cash or other matching incentives as seed money for you to establish a 529 plan. In one state the incentive is $500.00 per year with some qualifying conditions. I think it’s worth checking out. After all, what could be better than free money! And that’s what’s up!
Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC . Give2Get Rich, LLC 2021. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.