Here's What You Need to Know!
Taxes and Legal Requirements
- Gift Tax: If you buy a house and put it in your child’s name, it’s considered a taxable gift. To avoid paying tax, you’ll need to fill out a federal gift tax return (Form 709). Depending on your state (except Texas), you might also have to file a state version.
- Mortgage Option: If you want to buy the house and have your child pay you back like a mortgage, you must set up the proper paperwork and follow the federal minimum interest rate. If not, the IRS might see it as a gift, and you’ll have to pay income tax.
- Professional Help: The rules can change, so it might be wise to hire a professional to ensure everything is done correctly.
Ownership Issues
- Separate Property: Once you buy the house, it belongs to your child, not their spouse. But if they spend money on the house, it might become shared property, which could be an issue if a divorce occurs.
- Equal Treatment: If you have more than one child, think about how this gift might affect their inheritance. You can address this in your estate planning.
Other Options
- Using a Trust: Buying the house in a trust can give you control, protect it from legal issues or divorce, and let you decide how it’s used or passed on.
Get Expert Help
This is a big decision with complex legal and financial considerations. To make sure you’re doing everything right, you might want to get professional help. If you decide to buy a house for your child, Peabody Law Firm can guide you through the process and help you choose the best option for your situation.