Gift Taxes: Buying a House with Fiancée (PA)

May 15, 2020 7:56 AM

My fiancée and I are buying a house together. The mortgage will be in her name, but I will be supplying the bulk of the down payment. This will exceed the $15,000 gift limit. Do we need to get married to avoid taxes on the remaining amount I'm giving her? If so, when does this need to happen? We live in PA.

We aren't necessarily planning on getting married this year but can do so if that will save us the tax burden. Research online is giving conflicting information. It seems that you won't "necessarily" have to pay taxes just because a gift is made beyond $15,000, but I don't know what constitutes "necessarily" here. Is it just a question of staying under the lifetime limit, which is in the tens of millions? If that's the case, why does the yearly limit even exist?

I hope my question is clear but I'll message the mods as needed if there are details missing. In summary:

1. I am buying a house with my fiancée.
2. The mortgage will be in her name only.
3. I am supplying most of the down payment, which will exceed the $15,000 yearly limit before gifts are taxed.
4. Will we be taxed on the remaining balance of the gift if we don't get married?
5. If we will be taxed, how much will that be?
6. If we do get married, does it matter when? In other words, if I make the gift tomorrow but we get married before the end of the year, will that suffice?

posted by anonymous to Work & Money (14 answers total)

The yearly limit exists because originally the lifetime limit actually mattered.
posted by doomsey at 7:57 AM on May 15, 2020

The gift tax exemption is the same as the estate tax exemption, which is somewhere around $11 million dollars right now.

Then, on top of that, you can make a gift of $15,000 per person per year that is not reported against your estate tax exemption at all.

So if you want to gift her, say, $100k, then you will report $85k on form 709 and you won't owe taxes on it unless you have already gifted $11 million dollars in your lifetime.
posted by muddgirl at 8:00 AM on May 15, 2020 [9 favorites]

The mortgage will be in her name, but you'll be on the deed, right? If so, it's not a gift to her, it's your payment towards the house you both own. And you really should be on the deed. (The bank might consider the down payment money you contribute to be a gift for underwriting purposes, but that doesn't mean the IRS will consider it a gift for tax purposes.)
posted by mskyle at 8:02 AM on May 15, 2020 [13 favorites]

The purpose of the yearly exemption is so that we don't have to file form 709 every time we give someone a birthday present.
posted by muddgirl at 8:04 AM on May 15, 2020 [1 favorite]

Also I agree, if you are on the deed (and you should be on the deed), this isn't a gift or a transfer of assets.

If you're not going to be on the deed, you need to rethink this plan.
posted by muddgirl at 8:07 AM on May 15, 2020 [10 favorites]

According to this, "Adding a family member to the deed as a joint owner for no consideration is considered a gift of 50% of the property’s fair market value for tax purposes." So if she is paying less than 50% but getting 50% of the equity, that seems like it might be a gift. As others said, no tax consequences, but you may need to file form 709.
posted by Mr.Know-it-some at 8:48 AM on May 15, 2020 [1 favorite]

She can get the mortgage in her own name, but you can be on the title as the 2nd owner. You could write a simple agreement about the source of the funds and what will happen if you split up or one of you dies, whatever. Stuff happens. I would talk to a lawyer about this.
posted by theora55 at 9:23 AM on May 15, 2020 [2 favorites]

But she's taking out the mortgage, presumably for more than her half the value of the house.
posted by muddgirl at 9:27 AM on May 15, 2020 [1 favorite]

You're not giving her money for the mortgage--you're buying part of the house with your money and she's buying part of it with money she's borrowing. So if you'll both be on the deed, then there's no gift. You're buying half a house.
posted by gideonfrog at 10:16 AM on May 15, 2020 [4 favorites]

If you get married before you buy the house and the relationship ends, a judge can consider your down payment when deciding to divide your marital assets.

If you don't get married before you buy the house and you aren't on the deed and the mortgage is in her name, and then the relationship ends, you're probably not getting any of that money back or equity unless she decides to be nice or you sue her which would probably cost more than the $15k. If you are on the deed and the mortgage is in her name alone, she is assuming all the risk of the house and you are getting all of the reward legally speaking, since you own part of a house basically for that $15k investment and don't legally have to keep paying that mortgage. And if you do sign a gift form which the mortgage servicer may require, you will have absolutely no legal right to getting any money back since you promised it was a gift.

I'd get married before buying the house for those reasons without even considering gift taxes. It is more secure for both of you.
posted by possibilityleft at 2:16 PM on May 15, 2020

Are you really giving her the money as a gift or will you owning a part share of the house? If you are co-owner then you are paying for your interest in the house, not giving her an outright gift.

Also, if you are buying the house together, you really, really need to get a legal agreement in place to define the relationship, especially if you aren't married. Even if you do get married, you will probably want something in writing to define what will happen if you do get divorced in the future.

Finally, marriage, at least in my book, is a big commitment. Making a mistake - marrying and then getting divorced is a very expensive processes. Paying a lawyer to write up an agreement about ownership is going to be way cheaper than rushing to marry and then divorce.
posted by metahawk at 3:32 PM on May 15, 2020 [1 favorite]

Generally speaking its a bad idea to buy a house with someone to whom you are not married. It's just... not great. The whole framework of marriage exists to handle these sorts of complicated financial interminglings and the framework of divorce exists to handle the dissolution of these sorts of complicated financial interminglings.

You can, as metahawk suggests, pay a lawyer to come up with a legal framework to do the same things but you're basically re-inventing the financial aspects of... wait for it... marriage.

I'm not gonna tell you whether or not you should get married but I'll reiterate that it's generally not a great idea to buy a house together with someone to whom you are not married. It's a hell of a lot less fraught with peril to have one person buy it and the other person pay a reasonable and possibly discounted rent, though obviously that comes with its own perils.

But you don't provide anything like enough information to say in what specific ways this isn't a great idea. Are you on the deed? If you're on the deed but she's the only one on the mortgage, she's in a position to get hosed if things go pear shaped. If you're not on the deed then you're in a position to get royally hosed if things go pear shaped. And so on.

There's just not enough information here to say anything beyond DANGER WILL ROBINSON.
posted by Justinian at 5:51 PM on May 15, 2020 [1 favorite]

I second the posters above who have said that, from a long-term coupled financial standpoint, it's better to wait until you're legally married to make this purchase. I am sure you have many reasons to buy that house now but it sounds like you two could both benefit from having more time to explore options and details, even if it means missing out on this one particular property. There will always be other options and you don't want to rush on such a big purchase!
posted by smorgasbord at 6:39 PM on May 15, 2020

My boyfriend (defacto fiancé?) and I did this exactly. He provided the down payment, the mortgage is in my name only; we are both on the deed. No negative tax implications that I’m aware of, though my accountant did give me a little grief because technically he should be paying “rent”, not half the mortgage. Go for it and mazel tov!
posted by girlalex at 8:06 PM on May 15, 2020