What are the pros and cons of gifting a down payment – using a gifted payment? It might be handy to rely on a lump sum payment from your parents if you need to purchase a home. According to research from National Association of Realtors’ home buyers’ survey, as many as 26% of all first time home buyers got some or all of their down payment from a gift.  If you are considering a gifted down payment to purchase your first home, you’re not alone. However, you should carefully consider any implications this might have for you as well as your parents. How the gift is structured can have a big impact on your future obligations.

Gift Tax Exclusions

Many people are surprised to learn that gifts can be subject to a federal gift tax.  The IRS considers transfers to be gifts when the person making the transfer does not receive adequate consideration in return.  Each person is eligible to give up to $14,000 per donee per calendar year free from gift tax.  So a married couple can give up to $28,000 per year to the same person without any tax implications.  Parents or others wanting to make gifts should consult with an Arizona estate planning attorney, especially if their gifts to any one person exceed this “annual exclusion.”

Income Taxes

If your parents give you the funds to make a down payment for your home, the funds you receive are not taxable for federal income tax purposes. However, the lender may require documentation to show that the money is a gift instead of loan.  If the down payment is a loan, this raises your debt load and makes it harder for you to qualify for a mortgage.


If the money is loaned to you for the purposes of a down payment as opposed to giving it, the IRS mandates that you document the loan including interest payments as if you were borrowing the funds from someone else. The interest paid on the loan is taxable income for your parents. This is true even if your parents do not charge you interest since the IRS can impute the receipt of interest to them even where none is stated in the loan document.

This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Gifting a Down Payment – Using a Gifted Payment, or any other estate planning matters, please feel free to contact Stephen L. West at 480.461.5341, or Curtis M. Chipman at 480.461.5329. You can also log on to udallshumway.com,  or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.