It’s that time of year again when holiday gift giving is on everyone’s mind. But you know me, compulsive mortgage professional, I want to focus on but a single aspect of the loan process — gift funds— this same form of largesse that is received by a fortunate few and for the purpose of purchasing a home. As we go into the holiday season, I want us all to keep in mind that right behind Santa’s sleigh is Auld Lang Syne. And when we’re talking tax implications for gift funds, this can matter.
For 2019, the IRS annual gift tax exclusion amount will remain at $15,000 per person per year. This is totally separate from the lifetime gift exemption, so let’s be clear to focus only on the annual amount for now. Here’s where things get interesting. Let’s say you have a young couple looking to purchase their first home. Let’s call them Jack and Jill. Jack’s parents agree to gift him $30,000, as each parent can make the annual gift of $15K to their son. If they do this in December of 2018, Jack will have $30K in his account that he can use towards his home purchase. But let’s say the property search plays out across year’s end. Now, assuming they’re financially capable, Jack’s parents could make another, combined, $30K gift in 2019 and still meet the annual gift exclusion threshold. Sure, Jack just more than doubled his gift funds available, but his folks, just by running out the clock on this year, effectively doubled their excluded gifts in the eyes of the IRS.
Now I know some of you are reading and chomping at the sleigh’s bit to remind me, “But WAIT! There’s more!” Indeed there is. Jack’s parents could give $15K each to both Jack and Jill, so that’s $60K total in this year AND another $60K on January 1. Where most would read the guideline and think $15K, we, at this time of year, now know that $120K is the outside limit of what’s possible without tipping off the annual gift exclusion police.
So this holiday season, I advise homebuyers to shake down their donors early. Don’t wait until the spiked eggnog has fully kicked in. If financially possible, get your first gifts underway in this calendar year, and then double them once January arrives. Skip the fruitcake or fabulous fur coat. In higher cost areas, where willing and able donors exist, this gift fund strategy is sure to bring cheer.
And a partridge in a pear tree,
Robert J. Spinosa
Vice President of Mortgage Lending
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