Gift and mortgage interest deduction

[S T]

Have a client that will obtain an home equity loan on their primary residence for $100,000. In turn they are going to gift the $100,000 to their daughter and new son in law for a down payment on their first home. No monies being used for home improvements or personal credit.

question is: a gift tax return will have to be filed, but probably no gift tax due? and second part, if they are using $100,000 of equity on their home (home is paid in full, no liens) the mortgage interest should be fully deductible?



Confirmation would be much appreciated!

Thanks

Sandy

[Jesse]

In turn they are going to loan the $100,000 to their daughter and new son in law for a down payment on their first home.

............if they are using $100,000 of equity on their home (home is paid in full, no liens) the mortgage interest should be fully deductible?

If they are loaning the money to their daughter and new son then it is not a gift so I would think a Gift Tax return is not nessecary.

They would be able to deduct the mortgage interest, but I also think you would have to impute interest income on loan payments received from daughter, so could elect to take the interest expense as investment expense to offset the imputed interest?

Just thinking out loud - maybe reading too much into it?

[jainen]

a gift

The newlyweds' mortgage company won't allow the down payment to be a loan. They demand equity and reasonable debt ratios. Treat it as a gift.

[S T]

Mortgage Company

Correct, the mortgage company won't allow the loan from the parents, parents must sign a statement that the $100,000 is a gift.

Sandy

[Unregistered]

gift loans

You may want to review Code Sec. 7872.