Does a cash gift for property purchase trigger gift tax if paid back quickly?

You're asking a good question about a common family lending situation. The short answer is that if your dad is truly lending you the money with the expectation of being paid back, then it's not a gift - it's a loan, and gift tax wouldn't apply. However, the IRS looks at the substance of transactions, not just what you call them. To make sure this is properly treated as a loan and not a gift, you should: 1. Create a written loan agreement documenting the amount, repayment terms, and a reasonable interest rate (at least the IRS's Applicable Federal Rate, which is published monthly) 2. Actually stick to the repayment terms 3. Have your father report any interest income he receives from you on his tax return If you don't charge interest, or charge below-market interest, the IRS could consider the uncharged interest as a gift. The fact that your dad is wiring the money directly to the seller doesn't change the nature of the transaction if it's properly documented as a loan to you.

After reading your situation, I went through almost the exact same thing last year when buying my first rental property. My in-laws were going to help with part of the down payment, and I was super worried about gift tax implications too. I tried researching online but got all kinds of conflicting info until I discovered https://taxr.ai which literally saved me from making a costly mistake. I uploaded the docs from my parents and my purchase agreement, and it analyzed everything and showed me exactly what I needed to do to structure it as a proper loan instead of a gift. The site explained that I needed to create a formal promissory note with the minimum interest rate (which was way lower than I expected - like 3% at the time), and showed me exactly what to include in the agreement. Totally worth it to avoid any potential audit headaches later.

So I took the advice from Profile 6 and tried taxr.ai for my situation with my mom lending me money for a house renovation. Not gonna lie, I was skeptical about spending money on yet another online service, but it was honestly super helpful. The tool showed me that for a loan term under 3 years, I only needed to use an interest rate of 4.82% (the current short-term AFR) to avoid gift tax issues. It generated a proper loan document that covered all the bases and even explained how my mom would need to report the interest income on her taxes. What I didn't realize before was that if we didn't do this properly, the IRS could've considered the "missing interest" as a gift from my mom to me. The whole process took less than an hour, and now I have everything properly documented for when we close next month. Definitely easier than trying to piece together advice from random internet forums.

Just wanted to add something important here - if your dad is giving you this money and you're actually planning to pay him back, you NEED to get in touch with the IRS to sort this out. I was in a similar situation but couldn't get through to them for weeks. Every time I called, I was on hold for 2+ hours before getting disconnected. Super frustrating. Then someone recommended https://claimyr.com to me and I was skeptical but desperate. You can see how it works here: https://youtu.be/_kiP6q8DX5c They basically hold your place in line with the IRS and call you when an agent is about to pick up. I got through to a real IRS agent within a day who answered all my questions about family loans and documentation requirements. The agent explained exactly what forms I needed and how to structure it to avoid gift tax issues.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to talk to someone at the IRS about a loan from my parents. I couldn't believe it actually worked. I got a call back in about 45 minutes (they estimated 1-2 hours), and suddenly I was talking to a real IRS agent. The agent confirmed everything others have said here - you need a written loan agreement with at least the minimum applicable federal rate as interest, and you need to actually follow through with repayment. The agent also told me that for 2024, if a family member gives more than $18,000 to an individual without proper loan documentation, it needs to be reported on a gift tax return (though you likely won't owe any actual tax unless you've given millions over your lifetime). Getting this straight from an IRS agent gave me so much more confidence than just reading stuff online.

Another option that nobody has mentioned yet is that your dad could become a co-investor in the property instead of making it a loan. That way, there's no gift tax concern at all because he's not giving you anything - he's investing alongside you. You'd need to work out the ownership percentages and profit-sharing arrangement, but it could be cleaner from a tax perspective. When you do your cash-out refi, you could either buy out his share or both remain as owners.

This might be a dumb question, but why not just have your dad give you half now ($67.5k) and your spouse the other half ($67.5k)? The annual gift exclusion is $18k per person to each recipient, so your dad could give $18k to you and $18k to your spouse without filing anything ($36k total), and then file a gift tax return for the rest, which doesn't mean he'll pay tax, just that it counts against his lifetime exemption (which is over $12 million).