Mortgage interest rates are still at historically low levels, but they are expected to go up by year end. So if you have been thinking about helping your child — or grandchild — buy a home, consider acting soon. There also are some favorable tax factors that will help:
Zero percent capital gains rate. If the child is in the 10 percent or 15 percent tax bracket, instead of giving cash to help fund a down payment, consider giving long-term appreciated assets such as stock or mutual fund shares. The child can sell the assets without incurring any federal income taxes on the gain, and you can save the taxes you’d owe if you sold the assets yourself. As long as the assets are worth $14,000 or less (when combined with any other 2015 gifts to the child), there will be no federal gift tax consequences — thanks to the annual gift tax exclusion.
Low federal interest rates. Another tax-friendly option is lending funds to the child. Now is a good time for taking this step, too. Currently, Applicable Federal Rates — the rates that can be charged on intrafamily loans without causing unwanted tax consequences — are very low by historical standards. But these rates are also expected to increase by year end.
If you have questions about these or other tax-efficient ways to help your child or grandchild buy a home, please contact us.