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Can You Pay Off Someone Else’s Mortgage?

TLDR

What You Need To Know

  • 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

Contents

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 $16,000. This means you can give an individual $16,000 within a year, and the money won’t be taxed by the IRS. If you give an individual more than $16,000, you won’t pay taxes on the first $16,000.[1]

Because spouses can gift $16,000 each, a married couple can give away $32,000 tax free.(1)

Once you’ve given away $12.06 million, which is your lifetime gift tax exemption, you can’t take any more gift tax exemptions.[2] 

If you give away more than $12.06 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.

  1. Internal Revenue Service.“Frequently Asked Questions on Gift Taxes.” Retrieved May 2022 from https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes

  2. Internal Revenue Service. “IRS provides tax inflation adjustments for tax year 2022.” Retrieved May 2022 from https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022

ICYMI

In Case You Missed It

  1. While the rules around gift tax are complex, most people never reach the lifetime gift tax cap (which is $12.06 million for 2022)

  2. The homeowner gets to claim the tax deduction associated with the gift mortgage payment(s)

  3. You can assume someone’s mortgage loan to pay it off

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