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My parent, a sibling and I are buying a home together. My sibling and I will pay the mortgage loan, and my parent will provide the down payment. All three of us will be on the title, but since my parent will not be on the loan, the transaction is technically a gift.

Is the down payment "gift" taxable? If so, at what rate(s), considering my sibling and I are in two separate income brackets?

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    How is this a gift, precisely? If your parent is on the title, then barring any specific agreement, the assumption would I believe be 1/3 ownership, for which it seems they are making the downpayment? Of course, I assume all of this is being fully declared to the bank offering the mortgage? – Grade 'Eh' Bacon Oct 13 at 1:46
  • It's probably not a gift, but even if it were, gift tax is paid by the giver, not the receiver(s), and, you can gift over $11M in your life before you have to pay a dime of tax. But the giver does have to fill out a form if the gift is more than $15K in a year to any one person (or $30K to a married couple, or $60K if the giver is also married.) – TTT Oct 13 at 4:13
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Since this is the United States here are some numbers.

In 2020 the annual limit before having to account for the gift on your parent's tax return is $15,000 per person.

My parent, a sibling and I are buying a home together. My sibling and I will pay the mortgage loan, and my parent will provide the down payment. All three of us will be on the title, but since my parent will not be on the loan, the transaction is technically a gift.

The parents presence on the loan is not material for the gift tax issue. The first thing to know is are they a part owner. Even though the house might not be sold for years or even decades nailing down the ownership percentages now and having it reflected correctly on paper will be helpful in ways besides the current tax question.

If they are a part owner, then the amount of the down payment doesn't matter, as long as their ownership percentage isn't far removed from their percentage of the entire transaction.

If they aren't going to be a partial owner then they can give $15,000 in 2020 to you, and $15,000 to your sibling without having to file any related tax forms with the IRS. If your parent is married then their spouse can do the same thing. Which means that either $30,000 or $60,000 can be for the gift without tax issues.

If they want to contribute more than that they have a couple of options:

  • Give you the gift now in 2020, and then give another gift in early 2021. The IRS hasn't released the numbers for 2021 yet but it is likely they will stay the same. They can't just promise you the money in 2020, they will have to give you the money this year, and then more money in January.
  • File the tax form using some of their lifetime gift amount. They will not have to pay a gift tax now, and will only be relevant if their estate exceeds whatever the limits are in the future.

If the parent won't be on the loan documents the lender will want the parent to sign a form stating that the money is a gift. The lender wants to know if there is a secret agreement to pay the parent back. If it is a loan from parent to child the lender will need to consider the payback amount when determining if the borrowers can afford the loans.

If so, at what rate(s), considering my sibling and I are in two separate income brackets?

If there is any gift tax to be paid then it would be paid by the parent, so you and your sibling's tax brackets don't factor into the calculation.

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All three of us will be on the title, but since my parent will not be on the loan, the transaction is technically a gift.

Your assumption is wrong.

Assume the home costs $300,000. The parent pays $60,000 and owns 1/5, and each of you pays $120,000 and owns 2/5. The loan will be on $120,000, and the down payment made by your parent is $60,000.

This way, there is no gift or anything involved.

My numbers are completely made up and guessed. If the down payment deviates from the ownership ratio, there may or may not be a gift involved, but it is likely quite small.

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