The Moneyist: "I would favor that the cash by no means land in our account": My in-laws dwell with my spouse and me. They wish to use their 401 (okay) to repay our mortgage. What ought to we do?

Dear Quentin,

I am in an interesting position that I need help with. My in-laws live with me and my wife, and have been for some time. We moved in with them initially so I could graduate (I did), and the arrangement worked for us.

After the birth of our son they moved across country with us and after the birth of our daughter they withdrew again. Our son has some special needs so having them around is very beneficial.

We pay the mortgage and the bills, and they do a lot of the grocery shopping and some of the housekeeping. My mother-in-law works from home and my father-in-law is retired.

They also contributed the down payment for our first home and have always been very generous to us. You recently met with your financial advisor regarding your 401 (k) and will soon be able to receive payments from it.

""I'm afraid they'll look like they're paying us rent and we'll have to declare that income."

Without our knowledge, they want to use this money to pay off our mortgage. Happy days for us except we don't know how to actually do it. You want to transfer an amount equal to our payment every month – so that we can pay off the principal amount.

I'm afraid it looks like they are paying us rent and we have to declare that income. My father-in-law says we don't have to pay taxes because they have already paid the taxes for it.

I want you to make the payment directly to the bank. First of all, the tax implications. I am very grateful to them for being willing to do this, but since I have no authority for the funds, I would prefer that the money never end up in our account.

Am i ungrateful How should we deal with this situation? I feel very lucky to be in this situation, but it is already causing stress in the household and we need to find out sooner rather than later.

Grateful son-in-law

Dear grateful,

You are not ungrateful. You are careful. That's OK. There is no reason why it should be stressful. Your in-laws want to give you money on your mortgage with no tax penalties and there is an easy way to do it.

Each in-law can give you $ 15,000 each as a gift without counting towards their $ 11.7 million lifelong federal tax exemption. That will rise to $ 16,000 next year. You do not have to pay any taxes on this income.

It also doesn't matter whether they are depositing it into your checking account or directly into your mortgage account. When you take out a mortgage, the bank requires proof of income, but you decide how the installments are paid.

"When you take out a mortgage, the bank requires proof of income, but you decide how the installments are paid.

Paying money for your education and / or medical expenses is another way to give you tax-free cash in case you or your wife are at any time interested in further education or your children want to go to college.

You should make sure you have enough cash aside for retirement and unforeseen medical expenses, and paying off your mortgage in installments can be the smartest strategy since no one knows what life has in store for us.

Additionally, some tax experts say that given the lower value of certain assets such as businesses and / or potential increases in capital gains taxes by the Biden government, this is likely a good time for older family members to give gifts.

Just make sure there are no conditions attached. Given that housing is the number 1 cost for most families, this sounds like a generous and kind proposition made in good faith that should benefit you and your wife over the long term.

Not everyone is as lucky as you are.

You can email The Moneyist with financial and ethical issues related to the coronavirus to and follow Quentin Fottrell on Twitter.

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