tax implications of a gift of equity

[Robert Loiselle]

Hello BP, 

My wife and I are buying a house from my wife's aunt and she's giving us a great deal. We're getting the house for 300k and it's most likely worth around 375k or possibly more. I'm starting to lean towards doing a gift of equity so we can avoid having to put much money in this deal and still avoid PMI. We'll also be able to get a much better rate. We want to save our cash for other deals.

I have some questions on this type of transaction because I don't want to saddle my aunt-in-law with extra tax burden by doing this.  

I would imagine that the IRS will still enforce a tax based on the FMV or assessed value of the home (ie. if she was selling us the house for a dollar). If that's the case...and if the house is worth 375k or more (let's hope!), then I really don't see a downside of taking as much equity as possible as a gift. Is there something that I'm missing? Based on what I've been able to find online, it sounds like a gift tax is going to be assessed no matter what and it'll be calculated based on the true value of the house.

Any info or experience you folks can offer is much appreciated.  

Thanks for the help!

- Rob