Will downpayment aid draw gift taxes?

DEAR BENNY: My question concerns our gift to our son and his wife. My husband and I paid $28,000 for the downpayment on the house they bought in 2008. We paid it by a money order directly to the lawyer handling the transaction. Does our son owe any gift taxes on the $4,000 that is above the $24,000 gift amount that was allowed in 2008? The loan is in my son's name. The house is in both of their names. --Priscilla

DEAR PRISCILLA: The additional $4,000 above the $12,000 per gift that you made to your son and his wife is not taxable to them. It may have tax implications for your estate on your death. According to our federal tax laws, the donor (you and your husband) are responsible for any tax involving a gift. Discuss your specific situation with your own financial adviser.

Note that as of Jan. 1, 2009, the annual exclusion is now $13,000.

DEAR BENNY: My father recently passed away, and my mother is going to live with us. We are moving for job purposes and are planning to buy a larger home to accommodate everyone. Like many Americans, our current home is worth less than our mortgage, and my mother will gift us the $100,000 for a 10 percent downpayment. We will cover the monthly mortgage and mom will live under our roof. Can we avoid having mom on title to protect her and gift taxes? --Jana

DEAR JANA: Because I am not an accountant, you would be well advised to seek guidance from a financial professional. However, I do have a suggestion. Instead of gifting you the $100,000 (which may have tax implications for her), your mother should lend you this money. The loan will be secured by a second deed of trust (mortgage) on your property; the first mortgage will be the one you get from a commercial lender.

You will have to clear this arrangement with your mortgage lender. If approved, then every year your mother can gift up to $13,000 of the loan (i.e. reduce the balance owed) to you and another $13,000 to your husband.

You may also want to discuss with your financial advisers a concept called "SCIN" -- a self-canceling installment note. This is somewhat complicated but may be a useful tool for all parties.

DEAR BENNY: I am on the homeowners association board in a housing development that is about 10 years old, and residents are covered by covenants that were written at that time. There are no flagpoles, no outside antennas and no basketball hoops allowed (unless they are portable), and no tool sheds or other outbuildings, etc., allowed.

As you can guess, there are several flagpoles flying U.S. flags and basketball hoops on poles cemented in the ground that no one has ever challenged. Now a resident (a lawyer) has put up a shed and tells us he will not remove it because there are other covenant violations that are of long standing.

He further states that he will counter sue the board if we try to take him to court, since we are now being selective in how we administer the covenants. In your experience, where do we stand? ...CONTINUED

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