"Loans" to pass boards liquid requirements

Speaking as a board VP ...

Is this a "gift" or is it a "loan"? There's obviously a world of difference.

If it's a loan, not only would the money NOT be considered as a post-closing liquid asset, it would be factored into your overall debt to income ratio, further eroding your affordability.

And if it's a gift -- and you want to avoid any potential problems a board might have with such a large gift -- that money should be sitting in your bank account prior to the earliest statements we ask for.

Oh, well ... there goes tojc516's possibility of living in a walk-up in Fort George.

If you don't have the liquidity, you don't have it. Don't get cute and try to "trick" the board. It is unlikely to work, you will waste your and everyone else's time, and at the end you'll just be back to square one minus all the application fees you've paid. Boards are not easily fooled on financial matters. When they smell a rat or get the slightest uncomfortable feeling, they are not shy about requesting additional financial documentation. If they suspect a recent unexplained infusion of cash into an account, they may well seek the past 12 months of statements instead of just the typical last 3. If you receive a gift, they may seek proof that it is a gift--perhaps in the form of a sworn affidavit including an explanation of why the gift was made. Etc

A $500,000 "gift" would be taxed as income if from your employer or would be subject to the gift tax if from someone else. So there would necessarily be a paper trail establishing as such. It's pretty unlikely that you can fake a loan as a gift of this side, especially from an employer, since they presumably won't want to get on the wrong side of the IRS.

Thanks for thoughts, agree best way not get cute then end up possibly being rejected. If 1.5mil down, 1 mil in bank not enough prob not a building want to be in anyway. f***in co-ops and nursery schools, the price we must pay to live in Manhattan.......

"the price we must pay to live in Manhattan"

Not really.

There are plenty of people living in Manhattan who live in apartments that don't require $1.5 million down, $1 million post-closing liquidity, and don't pay $35,000 to a private school to teach their three-year-olds how to color and play with Play-Doh.

OP I am going to be the contrarian and enourage you to game the system, especially the stupid liquidity requirements.

My experience in the application process in the last two coop apartments I purchased is that as long as you have a bank statement showing you have the money they will take it at face value. They dont ask for three month's statements for one account.

Tojc - some buildings do allow this. For a few of the co-ops we considered applying for (nice UES buildings with very strict liquidity requirements), we were expressly told to DO this. I think this varies by the board/building. Some buildings just want to know that you can get that substantial sum of money if need be. Ask a lot of questions about this particular board (seller will obviously know, and his/her broker should also) and then you can determine if its worth it. There are tax issues with $500k however. Also I think its generally better if the "gift/loan" comes from a family member.

"My experience in the application process in the last two coop apartments I purchased is that as long as you have a bank statement showing you have the money they will take it at face value. They dont ask for three month's statements for one account."

You must have bought into some rather ... um ... liberal co-ops.

"A $500,000 "gift" would be...subject to the gift tax if from someone else."

"There are tax issues with $500k"

Not true for the next two years. For 2011 and 2012, the gift tax exemption was raised to $5 million.

Um ... there are tax issues with any "gift" over $13,000.

Isle_of_Lucy, at first I thought you were joking!

That's truly truly disgusting. What was the officially-stated rationale when it passed?

I don't advocate getting "cute" with a board, but for goodness sake, most people are not in the greatest of financial shape. Thanks to Ben B the rich were saved.

Why don't you buy a condo, boards are not for me.

Um ... you're wrong for the next two years, Matt. In December 2010, the gift tax exemption, which used to be $1 million, was raised to $5 million for 2011 and 2012. The $13,000 per person is only the amount that is not subject to the limitation, that's all. Anything beyond that is subject to the limitation (i.e. if you gave any more, it chipped away at that max). Prior to this year, that limitation was $1 million. For 2011 and 2012, it's $5 million.

alanhart, no joke. The officially-stated rationale was the beaten-to-a-pulp "extend the Bush tax credits" battle at the end of 2010. You may remember this battle, or perhaps not (if $5 million wasn't quickly forthcoming). For most people, it was moot, as $5 million was not in their future.

The $13,000 annual exclusion from gift tax is still in place. Anyone can gift up to $13,000 to anyone else each year. BUT these $13,000 gifts do not go against the life gift exemption, currently $5,000,000.

For the lifetime exemption, it depends on how much has already been gifted. If the only gifts you have received have not gone over the $13,000 annual exemption, you're in the clear. If you receive $5 million from one person this year, that person has used up the $13,000 exclusion, and $4,987,000 would eat into their lifetime exemption.

Sorry Lucy, but there are "tax" issues with gifts over $13,000. Gifts over $13,000 eat into your estate tax exemption. To use your last example, you would only have a $13,000 estate tax exemption.

Let me rephrase my earlier point: If you give someone $500,000, there will be a tax form to go with the donation regardless of whether or not any tax is due. So there's a fairly easy paper trail to establish whether an amount that large is a bona fide gift or not.

"Sorry Lucy, but there are "tax" issues with gifts over $13,000. Gifts over $13,000 eat into your estate tax exemption. To use your last example, you would only have a $13,000 estate tax exemption."

Yes, 2 cents, as I already said twice, the gifts over $13,000 eat into your estate tax exemption. Re-read my posts, that's *exactly* what I said.

However, there is no "tax" issue. UNLESS the donor wants to gift more money. If not, there is NO TAX in years 2011, 2012.

jordyn, you are correct.....if you give someone $500,000 there will be a tax form to go, REGARDLESS OF WHETHER OR NOT ANY TAX IS DUE. No tax will be due, unless you've reached your exemption.

Explained, and done. If you're not in the elite, it is meaningless to you anyway. If you're in the elite, you know about this already anyway.

OP, my guess is you're not in the elite, no offense. Carry on.

I'm sure that's what you meant to say, but that's not what you said.

hey! this place ain't big enough for the both of us! there's already a lucy here. you be lollapalooza.

You're all really Lucille Bogan.

nah, we're all really lucy in the sky with diamonds

"hey! this place ain't big enough for the both of us! there's already a lucy here. you be lollapalooza."

LOL, great name. Maybe I should change my name to Isle_of_GOB. :)