Down Payment "Gift"?

[Sequoia Austin]

I need some help understanding home buying finances.
A close family friend and I want to begin RE investing together. She has the cash and I have the ability to house hack and take out a loan. I was hoping to use her cash as a down payment and I would get an FHA loan and live in the property. We would then sign an agreement on the split of cashflow and equity, as I've read most partnerships are handled.

I recently learned that I would be unable to use her money for the down payment unless it was a “gift” to me (without expectation of getting the $$ back) if it were to go toward a down payment on a house. I was a bit confused because I thought this was a regular practice for creative RE financing!

What am I missing? How can we utilize our partnership to finance a home!?

Thanks in advance!

[Frank Chin]

@Trent Strohm We done gifting doing real estate. Yes, the giftor is liable to pay a gift tax if he or she exceeds the lifetime limit, and for the years 2022, $11.7 million. There is also an annual limit currently of $16,000 that you can gift each person annually without incurring a gift tax.

When we did it, the lifetime limit was much lower, at the time, only $2 million, so the attorney had us do it via annual limits, leaving the lifetime limit alone. Back then, annual limit was $10K per person per year. In our transaction we did some years back, our 50% of the property was valued at $60,000. Our mother-in-law gifted us $60,000, for my wife and myself, $10K to me and $10K to her via the annual limits, with a $60K note, but with $10K forgiven to me and $10K forgiven to my wife over a 3-year period, totaling $60K. There is a promissory note given, forgiven over 3-years, but with required statutory interest. Getting around the statutory interest, we issued a check, and our MIL issued a check back to us marking it X-mas gift.

Our MIL did gifting to us and her 2 other children, incurring no gift taxes at all.