I was asked about a parent helping a child buy a home, and that triggered the following five thoughts.
- Gift. You and your spouse can each gift $14,000 to your child and to the child’s spouse for a down payment. This gives you a tax-free gift of $56,000 using the gift exclusion, and your child and his or her spouse have $56,000 for the down payment.
- Lend the money. If you lend money to your child to purchase a home, the child can deduct the mortgage interest that he or she pays you.
- Create equitable ownership. Perhaps your child cannot qualify for a loan but can make the mortgage payments. So you buy the home and take out the mortgage in your name, and your child makes the payments.
- Joint ownership. For tax deduction purposes, this is easy to make work. Your child can deduct the full amount of the mortgage interest that the child actually pays, even though the child is only a partial owner of the home.
- Shared equity. If you prefer a more businesslike arrangement in helping your child achieve home ownership, the shared equity program could be the ticket. Under this arrangement, you create a rent-to-own program with your child.
I’m happy to guide you through any of the possibilities for helping your child buy that home.
Robert W Craig, EA Tax Services