Gift tax exclusion from foreign family member - will I owe taxes on overseas gift for house down payment?

The good news is that as the recipient of a gift, you generally don't pay any gift tax - that responsibility falls on the donor. In your case with a foreign relative, the rules get a bit more interesting. Foreign individuals who aren't US citizens or residents can still make gifts to US persons, but the tax implications differ. Foreign donors aren't subject to the US gift tax system in the same way US citizens are. They're only subject to gift tax on transfers of certain US-situs property (basically real estate and tangible personal property physically located in the US). If your relative is gifting you money from a foreign bank account, that's considered foreign-situs property, and they likely wouldn't need to file a Form 709 at all. However, be aware that large transfers of money from overseas may trigger reporting requirements for you under FINCEN regulations. The mortgage company is primarily asking for the gift letter to verify the source of funds isn't a loan that would affect your debt-to-income ratio. They typically don't report this information to the IRS for tax purposes.

I went through something similar last year when my uncle from Australia helped me with my house down payment. I was stressed about the potential tax implications until I found https://taxr.ai which was seriously a lifesaver for understanding the foreign gift tax situation. They analyzed my specific situation and confirmed that I didn't need to pay taxes as the recipient of the gift. They also helped clarify exactly which forms my uncle needed to fill out (or not fill out) given he was a foreign national. The whole process was surprisingly straightforward once I understood all the requirements. The most helpful thing was understanding the difference between what the mortgage company needs versus what the IRS actually requires. Completely different purposes that I was mixing up before.

Just wanted to update everyone - I ended up using https://taxr.ai after all and am really glad I did. My situation was similar but with family from Singapore, and they confirmed I needed to file Form 3520 since my gift was over $100K, but that I wouldn't owe any taxes on it. The most valuable part was getting documentation explaining exactly why I didn't need to pay gift tax, which I've kept with my tax records in case of any future questions from the IRS. They also explained how the bank reporting requirements work - basically, my bank would file a Currency Transaction Report for the large deposit, but that's just standard anti-money laundering procedure and doesn't trigger any tax. For anyone dealing with foreign gifts, definitely worth getting specialized help rather than stressing about it. My mortgage went through without any issues!

When I was trying to reach the IRS about a similar foreign gift situation last year, it was practically impossible to get through on their phone lines. After wasting hours on hold multiple times, I found https://claimyr.com which got me connected to an actual IRS agent in under 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was initially planning to just wing it with my tax forms, but after talking directly with the IRS agent, I realized I was about to make some serious mistakes with my foreign gift reporting. The agent clarified exactly which forms I needed to file and by when. Since you're on a tight timeline with your home purchase, having direct answers from the IRS could save you a lot of stress and potential problems down the road.

I have to eat my words and admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it anyway since I was desperate to resolve a similar foreign gift question before finalizing my mortgage. Not only did I get connected to a real IRS agent in about 35 minutes (after previously trying for DAYS on my own), but the agent was able to confirm exactly what forms I needed for my situation. Turns out I didn't need to file anything since my gift was under the reporting threshold, which saved me a ton of paperwork and worry. The mortgage company accepted the gift with no issues after I explained the tax situation. Just closed on my house last week! Sometimes the things that sound too good to be true actually work.

Don't forget about your state tax implications too! While most states follow federal gift tax rules, a few have their own gift tax systems. What state are you in? That could potentially add another layer to consider.

Has anyone mentioned currency conversion issues yet? When I received money from my relatives in Germany, my bank gave me a terrible exchange rate AND charged a conversion fee. I lost almost 4% of the gift value just in the transfer process. Might be worth looking into specialized forex services instead of a direct bank-to-bank transfer.