Buying their first home is one of the most significant milestones in a person's life. It's a momentous occasion that often signifies financial stability and independence. Many parents want to support their children in achieving this goal, and one common way to do so is by helping them purchase a home. But how can parents assist their kids in this endeavor while considering the legal and financial implications?
The Millennial generation has come of age, and Generation Z is following right behind them. Kiplinger’s recent article, “Four Ways Parents Can Help Kids Be First-Time Home Buyers,” discusses how parents can help their children buy their first homes in this landscape of high real estate prices and rising interest rates.
Parents may also opt to forgive some of the note's principal over time by utilizing the balance of the annual exclusion gift yearly or, for a larger amount, the lifetime gift exemption. But unlike the annual exclusion, the lifetime gift exemption is cumulative from year to year and applies to all recipients. The federal lifetime gift exemption is now $12.92 million per person or $25.84 million for a married couple. Still, it’s scheduled to decrease to $5 million (or $10 million for a married couple), indexed for inflation, starting in 2026.
Assisting a child in buying a home is a noble and generous gesture, but it's not without complexities. Parents should carefully consider their financial situation, the impact on their estate, and the potential legal and tax implications. Open and honest communication between parents and their children is crucial to ensure everyone's expectations are aligned.
If you're considering helping your child purchase a home, it's advisable to consult with an experienced estate planning or tax attorney. They can guide the most suitable approach and help you navigate the legal aspects, ensuring a smooth and secure process. Remember, with careful planning and the right advice, you can play a significant role in helping your child achieve the dream of homeownership.