Q: I recently bought a condo. My mother has sent me money — a gift — that she’d like me to use to reduce my mortgage payment and/or pay my loan off faster. What is her best strategy for getting a tax break? And what is mine?

I’m scared this will read as income to the Internal Revenue Service and I will have to pay a lot of taxes on it. I know I can refinance at any time for a mortgage reduction; I’d rather do that than just get it paid off sooner. Will I need a gift letter to refinance? –Lia

A: You have lots of questions — and they’re definitely the right ones! I’ll take them in turn:

1. Your mother’s best tax strategy depends on the amount of the gift. The IRS likes to state its taxation policies in a manner that seems backwards, linguistically. So, your mother’s gift is taxable — to her — unless it falls below $13,000 a year. Let me say that another way: Unless your mother is giving you more than $13,000 in a year, there are no tax implications for her.

One strategy many parents use is to break gifts greater than this exempt amount up over a series of years. I’ve also seen parents assist their children with much larger amounts of cash in a single lump sum that is written up as a loan, complete with terms for interest and repayment. At their discretion, they can then forgive the repayment and convert the loan into a gift over time, forgiving only the maximum gift amount every year.

Other parents have structured these loans as accruing interest over time, but not requiring repayment until the parent passes away, then leaving the full amount of funds to repay the loan to their child in their will or trust. What’s essential is that the loan is not forgiven outright at any time, which would result in you being taxed on "cancellation of debt" income.

As you can see, the rules around your mother’s tax situation can get somewhat complicated if the loan is more than $13,000 and she wants to avoid taxation. I would recommend she ask her accountant or tax professional for advice on how to proceed.

2. You don’t have to report a gift to the IRS as income, because it is not. The saying goes that no good deed goes unpunished. The IRS agrees: Gift money is taxable only to the giver — or, in tax terms, the donor. Gifts are not taxable to the recipient or donee (that’s you!).

3. You don’t necessarily need to refinance to reduce your mortgage payment. Refinancing costs money. Fortunately, you might not have to. If you make a large enough payment and ask that it be applied toward the principal, some lenders will voluntarily reamortize the loan across its entire term, bringing down your required monthly payment.

Whether this is feasible depends on your lump sum payment amount, your lender and your loan; some lenders, for example, won’t recast FHA loans. And most lenders who will recast loans require a minimum payment and a small fee to do it. Call your lender and/or reconnect with your mortgage professional and investigate the possibility of having your mortgage recast based on your lump sum payment.

If you do end up deciding to refinance your mortgage for any reason, you will not need a gift letter to account for the money if it’s been in your own checking, savings or other asset account for at least two months. If you’ve had the funds less time than that when you refinance, though, the lender might require not only a letter from your mother verifying that the transfer of funds was a gift, they might also require to see her source of the funds, i.e., her own account statements or payroll stubs.

You might find it easier to simply hold onto the funds for two months before you refi, if you decide to go that route.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription