I am not a tax advisor.  But many clients have questions about how gifts both affect their mortgage application and their taxes.  I am happy to explain:

  1. Gift amounts

There is no limit to the amount of the gift.  You may receive multiple gifts from multiple sources.

2. Gift sources

  • A gift can be provided by a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or
  • a fiancé, fiancée, or domestic partner.
  • The donor may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction.

3. Tax consequences

Again I am not a tax advisor, but there are no federal income taxes paid by the recipient upon receipt of the gift.  Many clients ask about estate taxes. A deceased individual upon their passing, may distribute up to $13,610,000 (as of 2024) to their heirs, without incurring any estate taxes.  If their estate is greater than $13.6MM, then the excess is taxed.

A person may give another person $18,000 (as of 2024) annually without impacting their estate tax exemption.  If the deceased’s contribution to any one person was in excess of that limit in a given year, then the donor’s estate tax exemption is reduced by the excess over $18,000.  For instance if you received $118,000 as a gift for your home purchase, then the donor’s estate tax exemption would be reduced from $13,610,000 down to $13,510,000 upon that donor’s passing.

So for many families – who do not expect to leave behind an an estate in excess of the lifetime exemption – receiving a gift larger than $18,000 won’t have an effect on federal income taxes.  Keep in mind that some states may have lower estate tax exemptions.  And certainly, every year, the estate tax exemptions will change.  After 2025, the lifetime exemption is expected to decrease

4. Documenting the transfer of a gift

For conventional and VA loans we are required to document the proof of transfer from the donor.  Cash is never acceptable.  

1. Personal check: If the gift is via a personal check, we need the ‘canceled check’ from the donor.  This is a double sided stamped copy of the check showing it cleared.  The donor (and only the donor) can access this document from their bank through online banking.  A gift recipient doesn’t have access to this document.

2. Wire: If the funds are wired we need the donor’s wire confirmation which they receive from their bank.

3. Certified or Cashier’s check: We need a copy of check and either the donor’s bank statement showing it clearing and received by the borrower OR a copy of the check, the donor’s withdrawal slip, and borrower’s deposit slip.

For FHA financing, we always need in addition to the above documents, proof the donor has the ability to give.  So we will also need their bank statement.  Remember, cash is never acceptable or usable.