One of the most popular ways to help someone get onto the property ladder is a gifted deposit.
It’s hard to get on that first step, so a lot of first-time buyers ask their parents for help. The thing is, gifting a deposit isn’t a straightforward process. One would think you simply need to transfer the money across to the giftee’s account, but that isn’t the case.
There’s a lot more to gifted deposits, and we’re going to explore all the frequently asked questions in today’s post.
Putting together a down payment for a home can be challenging, especially for first-time homebuyers. To help with the costs, many rely on monetary gifts from family or friends. But the IRS has rules about gifting money, so it’s important to understand if there are limits on gifted deposits when using them for a home down payment.
What is a Gifted Deposit?
A gifted deposit is money given by a friend or family member to be used as part or all of a down payment on a home. This can be a very helpful way for first-time homebuyers to get enough cash to qualify for a mortgage.
Deposits that are given as gifts can come from parents, grandparents, siblings, aunts and uncles, or even close friends. The person giving the gift owns the money, but they give it to the buyer as a gift so that they can use it for the down payment on their new home.
IRS Gift Tax Rules and Exclusions
The IRS considers any gift over a certain amount to be taxable income However, most gifted deposits for home down payments fall under the annual federal gift tax exclusion
Here are some key gift tax rules to understand:
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The annual federal gift tax exclusion for 2025 is $19,000 per individual giver. This means each person can gift up to $19,000 without being subject to the gift tax.
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For gifts under the annual exclusion amount, there is no gift tax and no need to report them to the IRS.
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The annual exclusion applies on a per-person basis. An individual can make multiple tax-free gifts up to $19,000 each. For example, giving $19,000 each to four children would be $76,000 total gifted tax-free.
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When spouses give together, they can give $38,000 to each recipient tax-free. Using each spouse’s exclusion, a married couple could give their married child a gift of $38,000.
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In addition to the annual exclusion, there is a lifetime gift and estate tax exemption that is over $12 million per individual in 2025. Very few exceed this limit over their lifetime.
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Gift amounts over the annual exclusion count towards the lifetime exemption but no tax is due until the exemption is exceeded.
Are There Limits on Gifted Deposits for Down Payments?
When used specifically as a down payment gift, there are no special IRS limits or rules on gifted deposits beyond the standard gift tax exclusions. As long as the gifted amounts fall under the $19,000 annual exclusion thresholds, they can be used freely as part or all of a home buyer’s down payment.
Because down payments on a home are typically under $100,000, gifted deposits for this purpose usually do not have any tax implications. For example, parents could gift a married couple $76,000 tax-free by using each parent’s $19,000 annual exclusion. This would cover a 20% down payment on a $380,000 home.
Even larger down payments can be covered tax-free by combining gifts from both sets of parents, grandparents, siblings, etc. Technically, there is no limit as long as each individual giver keeps their gift under $19,000 annually per recipient.
Mortgage Rules on Gifted Deposits
While the IRS does not limit gifted down payments, mortgage lenders often have their own rules about these funds. Key mortgage requirements to understand include:
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Documentation of gift funds – Lenders require a paper trail like a withdrawal receipt, cancelled check, or gift letter.
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Minimum borrower contribution – Many lenders want the borrower to contribute a minimum of 3-5% from their own funds, even if receiving a gift.
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Gift funds only – Cash gifts must be used for the down payment or closing costs, not for financial reserves after closing.
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No repayment expected – A letter will confirm the funds are an outright gift with no expectation of being repaid.
As long as you have proper documentation, gifted deposits can be an excellent source of down payment funds for hopeful homebuyers. Just be sure to comply with IRS rules so they are tax-free to the recipient.
Key Takeaways on Gifted Deposits
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Gifted deposits from family or friends are a popular way to fund part or all of a home down payment.
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Individual cash gifts up to $19,000 annually are exempt from federal gift taxes.
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There is no limit on total gifted deposits as long as each person keeps their gift under the annual exclusion amount.
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Mortgage lenders have additional rules, but will accept properly documented gift funds.
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Talk to family and friends, a lender, and tax advisor to ensure you understand all the requirements when using gifted deposits.
Is there a limit on how much deposit can be gifted?
A gifted deposit can be any amount up to the amount set by your lender, unless they say otherwise.
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- What Counts As A Gifted Deposit? Gifting Money Rules
One of the most popular ways to help someone get onto the property ladder is a gifted deposit.
Getting your foot on that all-important first rung is hard, so many first-time buyers turn to the Bank of Mum and Dad for help. The thing is, gifting a deposit isn’t a straightforward process. One would think you simply need to transfer the money across to the giftee’s account, but that isn’t the case.
There’s a lot more to gifted deposits, and we’re going to explore all the frequently asked questions in today’s post.
Gifted Deposit Mortgage | How Does A Gifted Deposit Work?
FAQ
How much can you gift someone for a deposit?
Is there a maximum amount of money that can be given as a deposit? Unless your lender says otherwise, there is no maximum amount of money that can be given as a deposit.
How much money can be gifted for a down payment?
For a down payment on a house, you can typically receive gift money from family members. In 2025, the IRS allows individuals to gift up to $19,000 per recipient without any gift tax implications. Married couples can gift up to $38,000.
What are the problems with gifted deposits?
The first is that, as we already said, the capital may be subject to inheritance tax if the donor dies within 7 years of giving the money away. The second reason is that if the donor runs into money problems, they might want you to repay them, which could cause a fight.
How much cash can you deposit as a gift?
It’s important to know the IRS requirements regarding cash gifts and income. Key Takeaways: Cash gifts and income are subject to IRS reporting rules. Gifts of up to $19,000 in cash are exempt from reporting in 2025.