My wife and I are purchasing our 1st home. My sister and bro-in-law offered to pay our down payment for us if we pay them back. We've been pre-approved for the mortgage but we ran into issues. It appears the only way to have them pay the down payment would be for them to gift us the money. We're doing a 20% down payment. We thought having my bro-in-law included as a co-signer would allow him to pay the down payment directly, but I guess we can't (not sure if that is because of the credit union's policy or what). There's two issues we have found with them paying it as a gift:
- We read the tax-free limit of gifting a relative money is $14,000 or $28,000 if married. We're purchasing the house for $171,000, so we'd have to break the limit to hit the $34,200 for our down payment.
- We would have to sign a gift letter as proof, stating that it's purely a gift and we wouldn't have to pay the gift back.
So my questions are as follows:
- We live in Michigan. I can't find any concrete proof, but I read that Michigan doesn't have a gift tax for passing that limit, is this true? Even so, would my brother-in-law still be hit with gift tax federally if we went over that limit?
- Would signing that gift letter and then still paying him back (personally, not through "official channels" or anything) be legal and not constitute fraud or anything like that?
- Is there any other way we could have them pay our down payment unpenalized we should look into?
Added (1). Update: Looking into the Gift tax further, it appears that there's only tax imposed on the giver if they reach the lifetime limit (of something like $5.34 million currently) - is this correct?
Read more: Using gift money for a down payment?
