Most parents don't have to fret about the tax consequences of helping a grown child with the purchase of a home, but there are some exceptions.
Q. My husband and I would like to contribute to the down payment on our only daughter's first home. We are vaguely familiar with the federal gift tax, but don't know the details. Can you help?
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A. Sure. The Internal Revenue Service allows an individual to give up to $14,000 a year to any number of children, grandchildren, stepchildren or anyone else. That means you can give as much as $14,000 to your daughter, and your husband can give her an additional $14,000.
If she's married and you're flush with cash, you and your spouse each could give another $14,000 to her husband.
You may be subject to the federal gift tax if your generosity exceeds those limits -- but generally, only if the cash and property you give (or have given) away pushes you above the related "lifetime tax exemption" that currently stands at $5.34 million.
Obviously, few people have to worry about such tax pitfalls. But since the gift that you and your husband plan to make still likely will involve thousands of dollars, it would be wise to consult an accountant or estate planner before signing the check or wiring the money.
Q. The bottom of our old water heater is rusting and starting to leak, so we need a new one. We have seen a lot of TV commercials and newspaper advertisements for "tankless" heaters that supposedly save on energy costs, but we don't know how they work. Can you explain?
A. Tankless water heaters, sometimes called "on demand" or "continuous" heaters, use a small gas burner or electrical element to instantly heat water only when it's needed. That's different from standard units, which use gas or electricity to heat or reheat water all day, even though most households need it for just two or three hours.
Installing a tankless system can slash up to 34 percent off your hot-water costs, according to the U.S. Department of Energy. That can be a savings of up to $200 a year. Those savings can be boosted even higher by the tax credits or rebates that are offered by many states and local utility companies across the nation.
As a bonus, the Energy Department says, a tankless heater can last about twice as long than a conventional heater and has easily replaceable parts that can extend its life even further.
Despite such potential benefits, tankless heaters aren't for everyone. They usually won't work well in homes that have low water pressure. And even if the water flow is sufficient, owners of large houses or those who often perform tasks that require lots of hot water at the same time, like showering and running the washing machine and dishwasher simultaneously, may need to install a second or even third unit to ensure that heat keeps flowing into the pipes.
You can get more information about tankless heaters by contacting your local utility company, calling the U.S. Energy Department, (800) 342-5363, or by visiting the department's website at www.energy.gov.
Q. We own a house here, but also have a rental property in another state. If we form the type of living trust that you often recommend, could we put both properties into the trust even though they are in different states?
A. Yes. Any number of properties can be placed into a single living trust, regardless of where they are located.
Based on the information you provided, forming an inexpensive trust could be a particularly good idea. Many people have bought or inherited a house or land in a different state. When they die, their estate must usually go through separate probate proceedings -- one for each state where they own a home or other assets.
All 50 states honor living trust laws. So, if you create a basic trust in your own state and put all of your properties into it, your heirs will reduce or eliminate legal fees and get the assets faster because trusts (unlike wills) don't have to suffer through the long and costly probate court process.
Real estate trivia: First-time buyers now account for only 27 percent of home sales, the National Association of Realtors says, down sharply from the traditional 40 percent. The big decline is largely blamed on the double-digit rise in prices, slow employment growth and the huge amount of student-loan debt owed by college grads who typically play a key role in this segment of the market.
• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.
© 2014, Cowles Syndicate Inc.