Ideas for Helping your Child Buy a Home
Find ideas for helping your child buy a home. Get trustworthy advice for helping your child buy a home with strategies from qualified Roseville area financial specialists.
Are you considering helping your child with buying a home? Some typical financial strategies to consider include lending your child money, gifting under the annual gift tax exclusion, pledging securities, or equity sharing.
Lending
Consider your own financial status. In cases where you have liquid assets, you could act as the mortgage lender to your child by making a loan to him or her to pay for the house. You would then enter into an agreement with your child for repayment of the note on the home.
Gifting
Another option is gifting your child the money for a down payment. Making a gift for the down payment is ideal for parents who are mainly concerned with decreasing the scope of their estate and taxes on it after their death. Current tax law allows individuals to make annual gifts of up to $14,000 per person. When both parents give, they can provide the child $28,000 toward the down payment without any gift tax liability.
If gifting seems to be your best option, you can make even larger gifts, with some pre-planning. For example, if your child is married, his or her spouse is also eligible to receive gifts. Together, a married couple could receive $56,000 in gift-tax-free money toward a home purchase. When the gift is spread over a new year, the amount can be doubled. This would mean the child and his or her spouse could have $112,000 toward the home’s cost.
Pledging Securities
Another possibility is to pledge securities in order to secure your child’s home loan at a financial institution. When parents pledge securities instead of selling them, they can avoid a potentially taxable situation.
Equity Sharing
One final alternative is equity sharing where the ownership of the home is shared. Typically in this situation, the parent provides the down payment, and the child pays the mortgage payment, utilities, taxes, and other ongoing expenses. The home is owned jointly, and the family should agree on a particular equity split when the home appreciates in value, so both parties are protected when the home is sold in the future.
For details on these and other options for parents who want to help their child buy a home, give us a call. Cook CPA Group at evelyn@cookcpagroup.wpengine.com or 916-432-2218