Question:

How to maximize advantages avoiding tax on gift of equity loans?

Answer:

You owe no tax on gift of equity if you are the recipient. It's the donor who is responsible for filing the gift tax return properly. In general, the donor is allowed to gift a family member $12,000 a year (as of 2007).

Here is how you can maximize the benefits of gift of equity loan taxes:

For example, if your brother and his wife are gifting your family (married couple, no children) each of them could gift each of you $12,000. That makes two donors and two recipients and a total of $48,000 non-taxable gift per year.

If they would like to make a Gift of Equity of, say, $80,000 they could split the amount over two years, to avoid exhausting the gift credit everyone can use in their lifetime.

Of course, they could gift the $80,000 to you in one year and it is unlikely they'll pay any taxes on the excess amount. However, they may like to avoid filing a gift tax return. Use the IRS website (Publication 950) to inform yourself about gift of equity tax rules, or use advice from a tax professional.

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