can sellers GIFT down payment?? - Posted by charles (del)


#1

Posted by Brad Crouch on October 24, 1998 at 23:49:33:

Mr. Donald,

Thanks for posting this (I think). It sure doesn’t seem right, does it?

It SEEMS as though the receiver of the gift ought to pay taxes on everything over $10,000. After all . . . they are the ones “receiving”.

It’s probably time for some of the “powers” of the IRS to be CURTAILED. This really seems “STUPID” to me.

Brad


#2

can sellers GIFT down payment?? - Posted by charles (del)

Posted by charles (del) on October 24, 1998 at 01:56:35:

Plan to flip rehab home soon. Can I gift cash to seller at settlement to meet FHA or other down payment requirements? I thought I saw someone write about this before.

Thanks


#3

Yes, but - Posted by Dave T

Posted by Dave T on October 24, 1998 at 23:46:44:

the seller “gift” needs to be in the form of a seller concession.

While your question mentioned down payment assistance, and others replied in that context, you should consider this scenario.

Most lenders have underwriting guidelines that will allow the seller to contribute from 2-4% of the contract price to the buyers closing costs.

If the buyer is eligible for an FHA 97% first time buyer mortgage, you can contribute 3% to the deal as a seller concession with no problem.


#4

No… - Posted by JPiper

Posted by JPiper on October 24, 1998 at 16:47:49:

I?m assuming that your question is that can the seller gift the buyer the downpayment money for an FHA loan. The answer is no.

For the purpose of an FHA loan the buyer can be gifted the downpayment and closing costs from a relative?.but not from the seller. Typically the lender will want a gift letter signed by the relative, and a cashier?s check made out to the buyer drawn by the seller. At least in this area I have not seen the lender verify the source of funds or the seasoning of said funds from the relative. I?ll let you put the rest of this together if you have a mind to. Again, this pertains to an FHA loan.

I might point out to you that there are 100% loans available currently for a buyer. The seller can also contribute a percentage of the purchase price toward closing costs. The buyer must have decent credit.

JPiper


#5

yes… - Posted by Mr Donald (NORVA)

Posted by Mr Donald (NORVA) on October 24, 1998 at 14:31:19:

“Gift cash to seller?”

How about “receive gift from family member to use as down payment to seller?”

Gifts are used as down payment all the time. Just be sure not to exceed $10K or your giver will be taxed by the IRS on this.


#6

Re: Yes, but - Posted by JPiper

Posted by JPiper on October 25, 1998 at 11:45:05:

I’d be careful here. The seller can pay the “prepaids”…he can also pay the origination fee and discount points. But IF the seller pays points FHA will lower the maximum loan amount. The effect that this has is that the seller is paying, but it’s not lowering the out-of-pocket cash required of the buyer. I would recommend that you verify which closing costs can be paid without lowering the loan amount under FHA with an FHA lender.

By the way, it’s a small but important point. FHA is not a first-time buyer loan. It’s open to anyone who qualifies under the guidelines as long as the loan amount is under the maximum’s for the area set by FHA.

JPiper


#7

Re: yes… - Posted by Brad Crouch

Posted by Brad Crouch on October 24, 1998 at 16:17:07:

Mr. Donald,

Why would the “giver” of this gift be taxed on the amount over $10,000, rather than the “receiver”?

Thanks,

Brad


#8

ask the IRS… - Posted by Mr Donald (NORVA)

Posted by Mr Donald (NORVA) on October 24, 1998 at 19:16:25:

Sec. 2501. Imposition of tax
STATUTE

(a)
Taxable transfers
(1)
General rule
A tax, computed as provided in section 2502, is hereby imposed for each calendar year on the transfer of property by gift during such calendar year by any individual resident or nonresident

Sec. 2502. Rate of tax
STATUTE

(a)
Computation of tax
The tax imposed by section 2501 for each calendar year shall be an amount equal to the excess of -
(1)
a tentative tax, computed under section 2001© on the aggregate sum of the taxable gifts for such calendar year and for each of the preceding calendar periods, over
(2)
a tentative tax, computed under such section, on the aggregate sum of the taxable gifts for each of the preceding calendar periods.

©
Tax to be paid by donor
The tax imposed by section 2501 shall be paid by the donor.

Sec. 2503. Taxable gifts
STATUTE

(a)
General definition
The term ‘‘taxable gifts’’ means the total amount of gifts made during the calendar year, less the deductions provided in subchapter C (section 2522 and following).

(b)
Exclusions from gifts
In the case of gifts (other than gifts of future interests in property) made to any person by the donor during the calendar year, the first $10,000 of such gifts to such person shall not, for purposes of subsection (a), be included in the total amount of gifts made during such year. Where there has been a transfer to any person of a present interest in property, the possibility that such interest may be diminished by the exercise of a power shall be disregarded in applying this subsection, if no part of such interest will at any time pass to any other person.