Down Payment on House Gift |Tax Free Way from IRA
Looking for a way to get a down payment gift from a relative? Did you know your parents could take money from their IRA to give you a down payment gift -- and not face any tax penalties?
Many people are buying Phoenix foreclosures for owner occupied homes and using FHA financing because it allows the least amount of money down from the buyer. One of the nicest features about using FHA financing is that it allows gift funds to be given from a relative to the buyer.
So let's say that you were buying a 100,000 home and you needed the required 3.5% or $3,500 dollars of down payment to qualify -- but you only have $1,000 in your bank account. A relative (and in some cases a non relative) can gift you the money with a statement stating that no repayment is required (called a gift letter) along with some other simple documentation. Then the gift funds can be counted as YOUR funds.
This might save you up to several months/years of saving money to make it to the $3,500 down-payment mark.
One thing many people don't know is that the IRS allows a parent to pull money out of their IRA "WITHOUT" penalty or taxation in order to gift those funds to a family member's home. Most people know you can take money out of your IRA for your own home. But many do not know that you can take money out of your account for the use of a parent's, child's or grandchild's home -- even if you will not live in that home!
See how nice the government is to NOT tax you on something.
See the IRS publication attached and see for yourself.