gift letter

In by Key Commercial Capital

If you are using gift money as part or all of your down payment or equity injection, you will need the donor to write a gift letter to the bank that makes it clear that the money is a gift and not a loan. Normally SBA lenders require the individual providing the gift to be the immediate family of the recipient (parent, grandparent, sibling or first cousin).

The person who gives you the funds will be required to provide bank statements in addition to a gift letter to verify were the money originated.

Gift letter tax implications:

Under the 2014 annual gift tax exclusion law, any individual can gift any other individual $14,000 per year tax free. So a married set of parents can each give $14,000 to each to their single child for a total of $28,000. Or that same set of parents could gift to a married couple a total of $56,000.

This does not need to be filed on annual tax returns, but must be documented for gift tax compliance as needed. The clearest way to handle the $56,000 example is to have the one parent write two $14,000 checks: one to her son and one to her daughter-in-law. Then the other parent would do the exact same thing, for a total of four checks of $14,000 each. If the parents were asked by the IRS to demonstrate that they were within the 2014 annual exclusion limit, it would be simple to document.

Lifetime gift tax exclusion limit

Second, under 2014 lifetime gift tax exclusion law, any individual can gift up to $5.34 million tax free over a lifetime. So let us say in the example above that the married set of parents were trying to gift their married son a total of $100,000. We know that they can gift $56,000 tax free under the annual exclusion rule. The remaining $44,000 can be gifted tax free under the lifetime exclusion rule. That amount can all be transferred in a lump sum, and the donors must complete IRS Form 709 to keep a tally of gift funds that fall under the lifetime exclusion.

Both the annual and lifetime exclusions change each year. The annual gift tax exclusion limit for 2015 will remain at $14,000. The lifetime gift tax exclusion limit for 2015 is projected to increase slightly to $5.43 million.



Gift letter template