DEAR MR. MYERS: We are fortunate enough to be in a financial position to loan our daughter the down payment to buy her first home. She would pay back the money over the next 10 years. Do you have any pointers for us before we transfer the money to her account?
ANSWER: Sure. So-called intrafamily loans are becoming more popular, in part because the long run-up in home prices has made it harder than ever for many first-time buyers to raise the cash for a down payment.
The loan has to be carefully crafted to protect both parties and to avoid problems with the IRS. First, your daughter should pay at least a modicum amount of interest. The rate should be equal to or higher than the IRS Applicable Federal Rate, which sets the minimum rates for intrafamily loans. The AFR recently stood at about 2.7 percent. Failing to charge the minimum can lead to all sorts of tax problems.
If no interest is paid, the IRS will consider the money to be a gift rather than a loan. You and your spouse can each give her $14,000, for a total of $28,000, without triggering the federal gift tax. Any amount above that total would be subject to the tax, which can be as high as 40 percent.
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When you and your daughter have the basics of the agreement worked out, visit an attorney to prepare a detailed promissory note and have it recorded with the county recorder’s office or similar agency. If it’s not recorded, your daughter won’t be able to deduct her interest payments.
You, of course, will need to declare the interest income on your future tax returns.
If all of this sounds too complicated, the well-respected National Family Mortgage will do all the work for you. It charges $750 to process intrafamily loans of up to $100,000.
You can get more information at nationalfamilymortgage.com or by calling the firm at 1-888-636-1990.
DEAR MR. MYERS: What are the best deals for household items in February?
ANSWER: February is an odd month for shopping, made even stranger this year because Valentine’s Day on Feb. 14 is immediately followed the next day by Presidents’ Day.
If you forgot to get a discounted box of chocolates for your sweetie, the best deals on the stuff you might need (and perhaps get you out of the doghouse) for your home may be on a new bedroom mattress.
No one is really sure why mattresses go on sale during February. Some claim it’s because both George Washington and Abraham Lincoln were notoriously bad sleepers, though there’s little written evidence to prove it. A more plausible explanation is that buyers start finding the time to search for a new bed after the holiday bustle and Super Bowl excitement is over.
Regardless, expect discounts of 50 percent or more at major retailers and at independent stores this month, said Gerry Borreggine, president and chief executive of Therapedic International. It’s a mattress manufacturer based in Princeton, New Jersey.
Carpet and flooring prices also tend to drop in February, as retailers try to clear out products that didn’t sell when homeowners were anxious to spruce up their properties before holiday gatherings in November and December. Expect discounts of 20 percent or even more, said Luke Knowles, founder of bargain-hunting site www.freeshopping.com.
If you’re lucky, you’ll snag savings of 50 percent or more on last year’s new furniture, because stores want to open floor space for all of the models that will come out soon. And trust me on this: Most of the 2016 lines of sofas, dining tables and the like that I’ve seen over the past few weeks don’t look much different than the stuff I saw 365 days ago.
DEAR MR. MYERS: I loved the recent TV miniseries about Bernie Madoff, the guy who ripped off more than $50 billion from other investors. But what can you tell me about the Lipstick Building, where his company ran its Ponzi scheme?
ANSWER: The Lipstick Building was co-designed by famed architects Philip Johnson and John Burgee and was completed in 1986. It got its name due to its unusual shape and color: Surrounded by all the traditional shoebox-style office buildings in Midtown, the 34-story project is instead oval in shape and is tiered in three layers that grow smaller as it stretches to the sky.
Its red granite and stainless-steel exterior makes it look even more like a giant open tube of lipstick.
Though Madoff’s firm began liquidation proceedings in the late 1980s, the Lipstick Building is still a sought-after spot by giant law firms, Wall Street funds and other financially related companies. It also boasts some of New York’s finest restaurants on its lower floors.
David W. Myers’ column is distributed by Cowles Syndicate Inc.