Nov 02, 2010
Dear Liza, My mother is going to get a reverse mortgage and give the money to me to pay off my house. How do we handle this to avoid any gift tax? I am sorry to tell you that what your Mom is proposing IS a taxable gift from her, to you, provided that it is over the annual exclusion amount of $13,000. She is planning on giving you money. That's the very definition of a "gift." If she goes ahead and does this, she will have to file a gift-tax return by April 15th of the following year. She won't, most likely, owe any actual money to the IRS, since she, like everyone else, has a lifetime credit on the gift tax equal to the transfer of $1 million dollars during her lifetime. Her gift tax return will let the government know that she is using up a portion of this lifetime credit, but she won't owe any tax. If your mother lends you the money, instead of gives you the money, and charges you an interest rate that's at least what's called the applicable federal rate (this is in a table published monthly by the IRS), then it's NOT a gift. Of course, then you have to pay her back.