01
The challenge
The family wanted to help the next generation buy the home without a bank loan. The documents had been drafted without tax review, which left four questions open: was the below-market portion a reportable gift, how should the seller's gain be reported, did the note meet IRS interest minimums, and what would happen to the property tax assessment?
02
Our approach
- Fixed scope and milestones. A written scope set four dated milestones, each with a fixed fee, before work began.
- Issues list (day 2). Gift of equity, part-sale part-gift gain, §121 exclusion, installment reporting, AFR test and the buyer's basis under Treas. Reg. §1.1015-4.
- Redlines (day 3). Purchase agreement, gift letter and promissory note were aligned with the intended tax treatment.
- Form 709 drafts (day 7). The gift was reported with the annual exclusion and gift-splitting where elected.
- Sign-off memo (day 9). Each position documented, plus the reporting calendar and next steps with the county assessor.
03
Results delivered
- Corrected documents before closing, with the note at or above the AFR.
- A prepared Form 709 and a clear calculation of gain, exclusion and installment reporting.
- A record of the buyer's starting basis.
- Guidance on the Proposition 19 parent-child exclusion claim.
04
Frequently asked questions
The giver reports it on Form 709 when it exceeds the annual exclusion. Gift tax is usually not owed because the excess reduces the lifetime exemption.
Under the part-sale, part-gift rules, the seller has gain only to the extent the price exceeds their adjusted basis. The home sale exclusion may reduce it further.
At least the applicable federal rate (AFR) for the note's term in the month of sale. A lower rate can lead the IRS to impute interest and a further gift.
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