Mortgage Pay-off from In-Laws?

Question

My In-laws have recently came into money.

They have offered to pay off our mortgage (roughly 170K)

What are the Tax Implications of doing this...positive/negative. (aside from the obvious, I won't be able to subtract the interest from our year end taxes)

For instance, gift tax implications?

Thanks in advance!!

Answer 1

If you receive a gift of $170K, there are no tax implications for you.  Enjoy!

Your in-laws should consult their estate planner or tax advisor regarding tax implications of their gift.  Depending on the size of their lifetime gifts and other assets, there may be taxes due on the gifts now or in the future.  Not your problem.

Answer 2

Presuming there are two in-laws paying off a mortgage due from two recipients, $48,000 of the gift would be free of gift tax. If the mortgage was paid off over two years, that amount more than doubles as the exemption will rise.  The balance would be applied towards their lifetime exclusion.  For most people, the tax implications of this will be zero.

Answer 3

Your in-laws will have to file a gift tax return, and they may have to pay gift taxes.  If you don't want to sift through the gift tax implications, it may be worth your time and money to sit down with a tax professional face to face and work out the implications.

Depending on your tax situation and on their tax situation, it may be better to simply do annual gifts over two or three years.

In 2008 your F-I-L can give you $12,000.  He can also give your spouse $12,000.  Your M-I-L can give you $12,000.  She can also give your spouse $12,000.  That is $48,000 that they can give you in 2008 that flies under the gift tax radar.  It has to be given with no strings attached - so they could give you the money and you could pay down your mortgage - or you could go out and buy a new boat...

They can turn around and give you the same amounts again in 2009 and 2010.