If you paid the down payment for your son’s home purchase, the IRS considers this a gift, and it may be subject to gift tax rules. To avoid exceeding limits and penalties, you may need to file IRS Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return.
Key Details:
1. Annual Gift Tax Exclusion (2024):
• You can gift up to $17,000 per recipient per year without filing Form 709.
• If you’re married, you and your spouse can split the gift, allowing a combined exclusion of $34,000 per recipient.
2. Lifetime Exemption:
• Gifts exceeding the annual exclusion count against your lifetime gift and estate tax exemption, which is $12.92 million in 2024.
• Filing Form 709 doesn’t mean you owe taxes—it just tracks the excess amount applied to your lifetime exemption.
3. When to File Form 709:
• If your gift exceeds $17,000 to one recipient in a year, you must file Form 709 by April 15 of the following year (or the extended filing deadline if you request an extension).
Steps to Take:
1. Calculate the Gift Amount:
• Determine if your contribution exceeds the annual exclusion.
• Example: If you paid a $50,000 down payment, $17,000 (or $34,000 with gift-splitting) is excluded; the remainder is reported on Form 709.
2. File Form 709:
• You’ll report the gift amount and indicate how much applies to your lifetime exemption.
• If gift-splitting with your spouse, both must agree and sign the form.
3. Avoid Penalties:
• Filing ensures compliance, even if no tax is due. Late filing could result in penalties if taxes eventually apply.
Additional Tips:
• Consult with a tax professional to ensure compliance and maximize exclusions.
• Consider documenting the gift as a loan agreement (if appropriate), which might exclude it from being treated as a gift.
Would you like help understanding how to fill out Form 709 or more guidance on tax strategies?
