Can your parents pay off your mortgage? Yes. Can you pay off your parents’ mortgage? Aww … and, yes.
In fact, you don’t have to be related to a homeowner to offer the gift of a mortgage payoff or a mortgage payment. You can make a payment on someone else’s mortgage to help them out when they’re in a financial rough spot or simply because you’re in the giving spirit.
FYI: You can even make this gift anonymously.
There are multiple ways to pay off someone’s mortgage, but each of them has specific tax implications for both the giver and the recipient. Since paying someone else’s mortgage is considered a gift under tax law, it’s a good idea to get comfortable with gift tax laws.
Take a look at what you need to know if you’re considering making this big, generous step.
How Paying Off Someone Else’s Mortgage Works
To make a mortgage payment on someone else’s behalf, you’ll need the name of their bank or lender and their mortgage loan number.
This information is often available through the county recorder’s office where the property is located. If you plan on paying off the mortgage, you’ll need to know the entire payoff amount, which may differ from the loan’s current balance.
What are the tax implications of paying off someone else’s mortgage?
For 2022, the annual gift tax exemption is $17,000. This means you can give an individual $17,000 within a year, and the money won’t be taxed by the IRS. If you give an individual more than $17,000, you won’t pay taxes on the first $17,000.[1]
Because spouses can gift $17,000 each, a married couple can give away $34,000 tax free.
Once you’ve given away $12.92 million, which is your lifetime gift tax exemption, you can’t take any more gift tax exemptions.[1]
If you give away more than $12.92 million (or whatever the cap is the year you reach it), you have to pay gift tax. Depending on your tax bracket, that could be anywhere from 18% – 40% of the gift amount.
What if I’m the lucky recipient of a gift mortgage payment?
Receiving the gift of a mortgage payment should supply you with lots of reasons to celebrate – but we’re going to give you one more. As the homeowner, you can deduct the interest from that mortgage payment(s).
That’s right. Because your name is on the mortgage and you’re legally responsible for the debt, you can deduct the mortgage interest no matter who made the payment(s).
Different Methods of Paying Off Someone Else’s Mortgage
There are several avenues you can explore to either pay off someone else’s mortgage or make a monthly mortgage payment. You can contribute directly to the homeowner. You can make a secret mortgage payment. Or you can assume the mortgage.
To make an anonymous payment or assume the mortgage, you’ll need the name and contact information of the mortgage lender and the mortgage loan number.
How to make a gift of monthly payments
A direct contribution is the easiest way to make a payment on someone else’s mortgage loan. Ask the homeowner for a copy of their mortgage statement so you’ll know what the monthly payment is. You can pay online, in person at the bank or lender’s office, over the phone or by mail.
How to make an anonymous payment
It’s possible to make a payment on someone else’s mortgage anonymously if you have the right information. The county recorder’s office where the home is located will have the property’s title on file.
The home’s title will include the lender’s name. Once you have that, you can contact the lender directly for their address and payment instructions.
If you don’t have the mortgage loan number, include the property address and the homeowner’s name with your payment. To be completely anonymous, mail a money order or a cashier’s check and keep your name and return address off the envelope.
How to assume a mortgage
Assuming a mortgage is the most complex way of paying off someone’s mortgage. First, you’ll need the homeowner’s consent to assume (read: take over) their mortgage. If you have a good credit score, the lender may agree to transfer the loan to you, especially if you’re a relative of the homeowner. But, spoiler alert: The loan’s mortgage interest rate may change after you assume the loan.
Another option is to take out a mortgage loan with a different lender and use that money to pay off the homeowner’s existing mortgage. At that point, you become the homeowner, and you are responsible for the monthly mortgage payments.
Real Estate: The Ultimate Gift
Paying off someone’s mortgage loan or making a few monthly payments is – to put it mildly – quite the gift. For many of us, it can be the very thing that helps lift us out of debt and puts us on a path toward financial security. But it’s a generous gift that can have tax consequences. If you want to give to your heart’s content while reaping the benefits of your tax-free gifting limit, be sure to consult with a tax and/or real estate professional.
Take control of your financial well-being.
Your debt-to-income ratio can tell your mortgage eligibility and give you a picture of your financial health. Learn yours today.
Try Our Calculator
The Short Version
- There are multiple ways to pay off someone's mortgage, but each of them has specific tax implications for both the giver and the recipient
- Since paying someone else's mortgage is considered a gift under tax law, it's a good idea to get comfortable with gift tax laws
- You can make an anonymous payment on someone else's mortgage if you have the right information
Back to top of page
Internal Revenue Service. “What’s New – Estate and Gift Tax” Retrieved January 2023 from https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
I'm an expert in personal finance and real estate matters, and my in-depth knowledge allows me to provide comprehensive insights into the concepts discussed in the article about paying off someone else's mortgage.
Firstly, the article outlines that paying off someone else's mortgage is a generous act that can be done for various reasons, whether to help someone in a financial rough spot or simply out of a giving spirit. The key takeaway is that you don't have to be related to the homeowner to make a mortgage payment on their behalf.
The article emphasizes the importance of understanding the tax implications involved in such transactions. It mentions that paying someone else's mortgage is considered a gift under tax law. In 2022, the annual gift tax exemption is $17,000 per individual, and this means you can give this amount within a year without it being taxed by the IRS. Married couples can collectively give $34,000 tax-free. However, exceeding the lifetime gift tax exemption limit of $12.92 million results in potential gift taxes ranging from 18% to 40%.
Moreover, the article provides practical information on how to make a mortgage payment on someone else's behalf. To do so, you need the name of their bank or lender and their mortgage loan number. The entire payoff amount, which may differ from the loan's current balance, is crucial information when making such payments.
The article also discusses different methods of paying off someone else's mortgage, such as making direct contributions to the homeowner, making anonymous payments, or assuming the mortgage. It highlights that assuming a mortgage is the most complex method, requiring the homeowner's consent and potentially impacting the mortgage interest rate.
Additionally, the article sheds light on the positive aspect for the recipient of a gift mortgage payment – they can deduct the mortgage interest from their payments on their tax returns. This benefit applies to the homeowner, even if someone else made the payment.
In conclusion, the article recognizes that paying off someone's mortgage is a significant and generous gift that can have tax consequences. It advises individuals to consult with tax and real estate professionals to navigate the complexities of gift tax laws and ensure a smooth financial transaction.
