My mother lent my husband & me $200K to close on our new house, but our mortgage broker made her sign a letter declaring the $200K a "gift," since he was concerned that our home loan wouldn't be approved otherwise.

Three weeks later, we repaid the $200, from the proceeds of the sale of our old home. Do we have to report this exchange to the IRS? --i.e. not have to declare each $200K as gifts?

  • That mortgage qualification tag is a guess. Any experts who feel that doesn't apply, please remove it. I was wondering if the gift tax issue is affected by the circumstances.
    – MrChrister
    Nov 19, 2013 at 16:13

1 Answer 1


In a perfect world, I'd look at the facts, and say that you were gifted 3 weeks interest by your mom. A bit less than $500, with no consequences.

Your broker should lose his license. He counseled you (or your mother) to make a fraudulent statement.

A true gift would require a Form 709 to declare the gift, and use up part of the lifetime transfer amount, the $5.25M estate tax exclusion. A loan simply requires proper documentation, and interest declared by both parties. Mom would need to claim as income, and if she had lien on your house you get a deduction.

I wrote an article on The Step Transaction Doctrine, in which I describe how the IRS can collapse/combine multiple transactions and simply consider the results. I believe this applies to your situation.

(Note - Since posting this answer, I've passed the exam to sell real estate in my state. We are advised never to offer mortgage advice, that's what the banks are for. As I wrote, the broker risks his license for his advice.)

  • In this case, if IRS really wanted, they could have them both on the hook for $200K taxable gift.... Or fraud.... Or both....
    – littleadv
    Nov 20, 2013 at 7:54
  • @littleadv - Right. So the Form 709 would be the solution. But with both gifts occurring in the same month (even the same year) they were not bonafide gifts. And really, the interest is too little for the IRS to be er, interested in. IRS regulation never use the term "quacks like a duck" but the Step Transaction Doctrine in effect, codifies that law. Nov 20, 2013 at 13:10
  • The issue is not with the broker but the mortgage company. If the mother had loaned the money to the OP (which she in effect did), then the OP would need to disclose this as a liability when applying for the mortgage. Not doing so would be a fraudulent application. So, since mortgage companies look at the applicant's bank statements and ask questions like "Where did that $200K in your checking account come from?" the response that "It is a loan from Mom which I did not disclose on my loan application" is cause for denial of application. (continued) Nov 21, 2013 at 3:13
  • (continuation...) On the other hand, saying it is a loan up front certainly drives the FICO score down since the applicant looks like someone with a lot of liabilities. In this sense, littleadv is correct: there have been gifts of $200K in each direction an the IRS could demand gift tax (or reduction in Unified Lifetime Gift and Estate Tax exemption for both). Nov 21, 2013 at 3:17
  • 1
    It's common for people to buy a house but needing to sell their first one. There are way to do this without committing fraud. Nov 21, 2013 at 20:43

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