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The number of first-time homebuyers who use monetary gifts from family or friends to make a downpayment on a house has increased to 25 percent from 20 percent over the past 10 years. The Internal Revenue Service taxes gifts of $12,000 or more, so it might benefit some parents to set up an intra-family mortgage. Children can benefit from below- market interest rates -- though they must pay the applicable federal rate of about 4.5 percent to avoid gift taxes -- flexible payment schedules, the absence of credit checks and lower closing costs. They can also deduct the interest from their income taxes, provided that there is a deed of trust and the mortgage is recorded with the county clerk. While the parents can benefit from steady cash flow during retirement years,it's best to avoid an intra-family loan solely as an investment, however. Most people can earn higher financial returns elsewhere. |
