Q: My parents are looking to invest with us by helping with the initial down-payment. I was wondering if there are any tax implication if they give us a ‘gift’ toward the down-payment. Is there a certain amount they should stay under?

A: Your parents can gift the annual exclusion amount of $13,000 in 2011 each to you and your wife without having to pay gift tax. The max they can give you and your wife in 2011 without gift tax would be $52,000 (Mom gives you and your wife $13,000 each and Dad gives you and your wife $13,000 each. There is no tax to you and your wife for receiving a gift.

I am a little confused about the last sentence in your question concerning everything being in your name and paying your parents back with interest. If your parents are gifting money to you and your wife then there should be no payback with interest. Perhaps they are giving a gift and loaning you additional money. This sounds pretty complex.

Estate tax and gifting is very complicated and it changes all of the time. It changed on 1/1/2011 and after 12/31/2012 it changes again so there are a lot of question marks for the future. Please let me know if we can assist you moving forward with the investments and gift tax. Thanks again for the great question. Have a nice week.

That’s a great question. There are some definite differences between the two accounting methods but rest assured, most Condo associations use the accrual method of accounting. This is because it is very helpful for budgeting reasons to determine the budget vs. actual comparisons.

The Accrual Method of Accounting allows balance sheet accounts like Accounts Receivable to populate all current amounts owed but not received yet by the condo owners and at the same time it allows the income from Accounts Receivable to be reported on the Income Statement in the period that the income was actually earned. This method is also helpful when tracking delinquent receivables from condo owners.

It also allows Accounts Payable expenses to be reported on the Income Statement as an expense if the amounts have not been paid yet to venders and at the same time it allows the expenses from Accounts Payable to be reported on the Income Statement in the period that the expense resulted. This method is also helpful when tracking aging payables to venders so you can better manage cash flow.

The Accrual Method also allows the accrual of certain expenses that need to be added to a reserve account so the money will be available when a very large outflow of cash is needed. For example: The replacement of a roof, repaving of a parking lot and yearly insurance premiums are some of the expenses that should be accounted and accrued for on a monthly basis.

We account for these expenses on a yearly basis because each month a portion of the roof has depreciated or an amount of the Insurance premium has been consumed. The roof will one day need to be replaced, the parking lot will need to be repaved and the yearly insurance bill will come due. If these amounts are not accrued for and money is not set aside for these expenses, then most condo associations would have to assess its owners to cover the huge outlay of cash.

Also, the monthly expenses would be understated over many periods and then all of a sudden the expenses would be overstated in the period that the condo pays for its new roof. Accounts Payable expenses are reported on the Income Statement as an expense if the amounts have not been paid yet to venders and at the same time it allows the expenses from Accounts Payable to be reported on the Income Statement in the period that the expense resulted.

I hope that this explanation helps. If you have any additional questions, please contact me at 727.474.0922 and I would be happy to discuss them with you.