Home prices have increased substantially over the last five years, making it difficult for first time home buyers to save a down payment. Meanwhile, baby boomers are at a time in their lives where they can help their kids make home ownership a reality by gifting down payment. It feel’s great to help your kids get ahead, but there are also some economic benefits of gifting down payment.
Tax, legacy and legal reasons as explained in this article from Canadian Mortgage Trends.
Tax
Baby boomers are in the midst of a wealth transfer, and if the money coming to you isn’t needed it could lead to a tax hit. Since there is no “gift tax” in Canada, gifting down payment to your kids is a great way to avoid any tax burden. Holding on to this money for it to be inherited later may not be the best idea…
Legacy
We’ve all heard stories about children who inherit a fortune and spend it far too quickly, therefor it may not be the most practical to gift in the form of cash. Furthermore, gifting property to your kids will result in a tax bill for 50% of the capital gains, since it is seen as a gift of assets “in-kind”. Instead, why not gift the money to your kids now, to be put down on an appreciating asset?
Legal
Gifting down payment, instead of co-signing, makes more sense because you’re not responsible for the mortgage if your kid can’t make payments. To gift down payment you sign a letter stating the money is a gift and doesn’t have to be repaid. After the money is transferred all ties between you and that money are cut. As a result, you’ve helped your kid make home ownership a reality, without being legally tied to the property.
The Mortgage Centre KW will work with first time home buyers and their parents to give the best advice. We have been in business for over 35 years. As a result, our expertise, team approach and availability are highly valued by our clients. If you’d like more information on gifting down payment to your kids, contact us today.
