Equity Gift
My parents have a home worth $250K and a $100K mortgage balance. They are willing to gift my sister $50K for the purchase. She will need all $50K because her credit is not good. My question is how to avoid my parents getting slapped with any gift taxes. I have seen another post where the parents would have gifted $11K each to husband and wife over two years and then gifted the balance needed to one of their kids. However, my sister is divorsed and her grown children no longer live with her. Do you have any strategy that would prevent gift taxes in this situation?
Your parents can combine their annual gift tax exclusions to gift your sister $22K tax free each year. The amount that exceeds $22K ($11K per taxpayer) is a taxable gift.
This amount must be reported on a Gift Tax Return with your parent's annual 1040. However, the Gift Tax Return is simply informational until the lifetime taxable gifts exceed some really high number (like $1.5 million this year). Once the lifetime taxable gift total exceeds this number, then gift taxes are actually assessed on the overage.
Unless your parents have been extremely generous in the past, this gift will not result in a gift tax even though a Gift Tax Return would have to be filed.
The foregoing only applies to the federal income tax return. Your parent's state gift tax rules may differ
Consult your tax advisor for specific details.