Fact checked by Jared EckerReviewed by Margaret JamesFact checked by Jared EckerReviewed by Margaret James
A gift letter is a piece of legal, written correspondence explicitly stating that money received from a friend or relative is a gift. The most common use of gift letters is when a borrower has received assistance in making a down payment on a new home or other real estate property. Such letters state that the money received is not expected to be paid back in any way, shape, or form. If you have received a gift from friends or family to buy property, your mortgage provider may require you to sign a gift letter.
In this guide, we’ll look at what a gift letter is, how and why you can use one, and what the tax implications of gifts are.
Key Takeaways
A gift letter is a piece of legal, written correspondence stating that money received from a friend or relative is a gift.Gift letters are important when it comes to paying a real estate down payment, for example, because lenders tend to frown upon borrowers using additional borrowed money for a down payment on a home or other property.A lender may require a receipt for a gift letter if there are abnormally large deposits into your bank account leading up to the purchase of real estate or an indication of third-party funds helping fund the purchase.A gift letter must contain the donor’s name, the gift’s value, confirmation that the gift is not to be repaid, and the donor’s signature.For tax year 2024, the annual exclusion on a gift per person per year is $18,000, an increase of $1,000 over 2023, according to the Internal Revenue Service (IRS). A donor will have to pay taxes and file a gift tax return on any amount above that amount.
What Is a Gift Letter?
A gift letter is a formal document proving that money you have received is a gift, not a loan, and that the donor has no expectations for you to pay the money back.
A gift can be broadly defined to include a sale, exchange, or other transfer of property from one person (the donor) to another (the recipient). Common forms of gifts include:
Cash, check, or other tangible items Transferring a title to stocks or real property without receiving anything in exchange Forgiving debt Below-market loans
While gift letters are most common with mortgage down payments, they can be provided for estate planning purposes or with a gift of equity. An equity gift letter accompanies a home sale below market value. This usually occurs when someone gifts real estate property to a relative.
Gift Letters and Mortgages
Though gift letters can cover any kind of gift, made for any purpose, they are most commonly used during the process of applying for a mortgage to buy property. If you are buying property, and if you have received a monetary gift that you plan to use toward a mortgage down payment or closing costs, then you must provide a gift letter to prove that the money is not a loan.
During the underwriting process for a mortgage loan, lenders may check a loan applicant’s financial status and verify that they have the means to repay the loan. In addition, this additional debt may be considered when factoring in the pricing and terms of the mortgage agreement.
For example, suppose you just got married and your grandparents gave you $5,000 as a wedding gift. You can use this money toward a down payment and closing costs on a home, but to do so, you’ll have to reassure your mortgage provider that it wasn’t a loan.
To do that, you should have your grandparents draw up a gift letter that you can then give to a mortgage lender. The gift letter will indicate their relationship to you, the exact amount and source of the funds, and state that you’re under no obligation to pay it back.
Important
If you plan on using wedding gift money to put a down payment on a home, make sure it comes from an eligible donor. Gift letter requirements and acceptable donors vary by mortgage loan type.
How to Write a Gift Letter
Gift letters follow a fairly standard format, but some mortgage lenders (or other financial institutions) prefer you to use a template. In general, the person giving the gift must write and sign the gift letter. Ideally, they should provide the gift letter at the time of the gift, but this doesn’t always happen and the letter may be written and signed at a later date.
A gift letter should include the following information:
The exact dollar amount of the giftThe donor’s name, address, and phone numberThe donor’s relationship to the loan applicant The date when the funds were or will be transferred A statement that no repayment is expected The address of the property being purchased (if known at the time) The recipient’s and donor’s signatures
Bear in mind that your mortgage lender may well look into the circumstances of the gift and may ask you for more information or evidence about it. This could include bank statements, check copies, and proof of wire transfer. This research is done to validate your financial situation, assess risk, and ensure that you can repay the loan to which you are applying the gifted money. It’s possible to use multiple gifts toward your down payment, but you’ll need a separate gift letter for each one.
Warning
Check with your mortgage provider about what evidence you should provide with a gift letter—otherwise, your application may be delayed.
Gifts and Taxes
Not all gifts are taxable. Gifts that fall into the following categories are not taxable:
Gifts that are not more than the annual exclusion for the calendar yearTuition or medical expenses that you pay for someone elseGifts to your spouse. Married couples may take advantage of a “gift splitting” tax rule and give up to $36,000 combined without incurring tax penalties.Gifts to a political organization
If a gift is taxable, the donor is usually the one who pays the gift tax unless the gift recipient makes an arrangement to pay it.
As of 2024, the Internal Revenue Service (IRS) determined that the annual exclusion on a gift per person per year is $18,000, an increase of $1,000 over the 2023 limit. This means that the donor will have to pay taxes and file a gift tax return on any amount above that. For example, if someone gives you $25,000, they will have to pay taxes on the amount over the annual exclusion. For 2024, this would be $7,000.
Lastly, be aware that even if gift amounts fall within the IRS gift exclusions and exemptions, donors will still need to file a tax return so that their donations can be counted toward their lifetime tax exemption.
Which Gifts Are Not Taxable?
You don’t pay taxes on some types of gifts. These include gifts that are not more than the annual exclusion for the calendar year, tuition or medical expenses, gifts to your spouse, or gifts to a political organization.
Is a Gift Letter Legally Binding?
Yes. Because the paperwork for your loan is entered into the record, a gift letter is then a legally binding document.
Does a Gift Letter Need to be Signed?
Because a gift letter is legally binding, lenders will require the letter to be signed by the donor. It is less important for the recipient to sign the letter, as it is primarily focused on confirming that the donor does not expect to receive their money back.
How Do I Write a Gift Letter?
Most mortgage providers will have a template that you can follow, but in general, your gift letter should include:
The donor’s name, address and phone numberThe donor’s relationship to the clientThe dollar amount of the giftThe date when the funds were (or will be) transferredA statement from the donor that no repayment is expectedThe donor’s signatureThe address of the property being purchased, if known
The Bottom Line
A gift letter is a formal document proving that money you have received is a gift, not a loan, and that the donor has no expectations for you to pay the money back. Though gift letters can cover any kind of gift, made for any purpose, they are most commonly used during the process of applying for a mortgage to buy property.
Read the original article on Investopedia.
Fact checked by Jared EckerReviewed by Margaret JamesFact checked by Jared EckerReviewed by Margaret JamesA gift letter is a piece of legal, written correspondence explicitly stating that money received from a friend or relative is a gift. The most common use of gift letters is when a borrower has received assistance in making a down payment on a new home or other real estate property. Such letters state that the money received is not expected to be paid back in any way, shape, or form. If you have received a gift from friends or family to buy property, your mortgage provider may require you to sign a gift letter.In this guide, we’ll look at what a gift letter is, how and why you can use one, and what the tax implications of gifts are.
Key TakeawaysA gift letter is a piece of legal, written correspondence stating that money received from a friend or relative is a gift.Gift letters are important when it comes to paying a real estate down payment, for example, because lenders tend to frown upon borrowers using additional borrowed money for a down payment on a home or other property.A lender may require a receipt for a gift letter if there are abnormally large deposits into your bank account leading up to the purchase of real estate or an indication of third-party funds helping fund the purchase.A gift letter must contain the donor’s name, the gift’s value, confirmation that the gift is not to be repaid, and the donor’s signature.For tax year 2024, the annual exclusion on a gift per person per year is $18,000, an increase of $1,000 over 2023, according to the Internal Revenue Service (IRS). A donor will have to pay taxes and file a gift tax return on any amount above that amount.
What Is a Gift Letter?A gift letter is a formal document proving that money you have received is a gift, not a loan, and that the donor has no expectations for you to pay the money back.A gift can be broadly defined to include a sale, exchange, or other transfer of property from one person (the donor) to another (the recipient). Common forms of gifts include:Cash, check, or other tangible items Transferring a title to stocks or real property without receiving anything in exchange Forgiving debt Below-market loans While gift letters are most common with mortgage down payments, they can be provided for estate planning purposes or with a gift of equity. An equity gift letter accompanies a home sale below market value. This usually occurs when someone gifts real estate property to a relative.Gift Letters and MortgagesThough gift letters can cover any kind of gift, made for any purpose, they are most commonly used during the process of applying for a mortgage to buy property. If you are buying property, and if you have received a monetary gift that you plan to use toward a mortgage down payment or closing costs, then you must provide a gift letter to prove that the money is not a loan.During the underwriting process for a mortgage loan, lenders may check a loan applicant’s financial status and verify that they have the means to repay the loan. In addition, this additional debt may be considered when factoring in the pricing and terms of the mortgage agreement.For example, suppose you just got married and your grandparents gave you $5,000 as a wedding gift. You can use this money toward a down payment and closing costs on a home, but to do so, you’ll have to reassure your mortgage provider that it wasn’t a loan.To do that, you should have your grandparents draw up a gift letter that you can then give to a mortgage lender. The gift letter will indicate their relationship to you, the exact amount and source of the funds, and state that you’re under no obligation to pay it back.
ImportantIf you plan on using wedding gift money to put a down payment on a home, make sure it comes from an eligible donor. Gift letter requirements and acceptable donors vary by mortgage loan type.
How to Write a Gift LetterGift letters follow a fairly standard format, but some mortgage lenders (or other financial institutions) prefer you to use a template. In general, the person giving the gift must write and sign the gift letter. Ideally, they should provide the gift letter at the time of the gift, but this doesn’t always happen and the letter may be written and signed at a later date.A gift letter should include the following information:The exact dollar amount of the giftThe donor’s name, address, and phone numberThe donor’s relationship to the loan applicant The date when the funds were or will be transferred A statement that no repayment is expected The address of the property being purchased (if known at the time) The recipient’s and donor’s signaturesBear in mind that your mortgage lender may well look into the circumstances of the gift and may ask you for more information or evidence about it. This could include bank statements, check copies, and proof of wire transfer. This research is done to validate your financial situation, assess risk, and ensure that you can repay the loan to which you are applying the gifted money. It’s possible to use multiple gifts toward your down payment, but you’ll need a separate gift letter for each one.
WarningCheck with your mortgage provider about what evidence you should provide with a gift letter—otherwise, your application may be delayed.
Gifts and TaxesNot all gifts are taxable. Gifts that fall into the following categories are not taxable:Gifts that are not more than the annual exclusion for the calendar yearTuition or medical expenses that you pay for someone elseGifts to your spouse. Married couples may take advantage of a “gift splitting” tax rule and give up to $36,000 combined without incurring tax penalties.Gifts to a political organizationIf a gift is taxable, the donor is usually the one who pays the gift tax unless the gift recipient makes an arrangement to pay it.As of 2024, the Internal Revenue Service (IRS) determined that the annual exclusion on a gift per person per year is $18,000, an increase of $1,000 over the 2023 limit. This means that the donor will have to pay taxes and file a gift tax return on any amount above that. For example, if someone gives you $25,000, they will have to pay taxes on the amount over the annual exclusion. For 2024, this would be $7,000.Lastly, be aware that even if gift amounts fall within the IRS gift exclusions and exemptions, donors will still need to file a tax return so that their donations can be counted toward their lifetime tax exemption.
Which Gifts Are Not Taxable?
You don’t pay taxes on some types of gifts. These include gifts that are not more than the annual exclusion for the calendar year, tuition or medical expenses, gifts to your spouse, or gifts to a political organization.
Is a Gift Letter Legally Binding?
Yes. Because the paperwork for your loan is entered into the record, a gift letter is then a legally binding document.
Does a Gift Letter Need to be Signed?
Because a gift letter is legally binding, lenders will require the letter to be signed by the donor. It is less important for the recipient to sign the letter, as it is primarily focused on confirming that the donor does not expect to receive their money back.
How Do I Write a Gift Letter?
Most mortgage providers will have a template that you can follow, but in general, your gift letter should include:The donor’s name, address and phone numberThe donor’s relationship to the clientThe dollar amount of the giftThe date when the funds were (or will be) transferredA statement from the donor that no repayment is expectedThe donor’s signatureThe address of the property being purchased, if knownThe Bottom LineA gift letter is a formal document proving that money you have received is a gift, not a loan, and that the donor has no expectations for you to pay the money back. Though gift letters can cover any kind of gift, made for any purpose, they are most commonly used during the process of applying for a mortgage to buy property. Read the original article on Investopedia.
Amazon.com: Its Role in the U.S. Industry
Introduction
Amazon.com, often simply referred to as Amazon, has transformed from an online bookstore into a colossal global conglomerate that has fundamentally altered the landscape of retail, technology, and numerous other industries. Founded in 1994 by Jeff Bezos, Amazon’s rapid growth and diversification have made it a central player in the U.S. economy. Its impact is felt across various sectors, including e-commerce, logistics, cloud computing, entertainment, and even artificial intelligence. This article explores Amazon’s role in the U.S. industry, examining its influence, achievements, and the challenges it faces.
The Rise of Amazon.com
Origins and Early Growth
Amazon began as an online bookstore in Bezos’s garage in Bellevue, Washington. The vision was simple but revolutionary: to create an online platform where people could buy books. Bezos recognized the potential of the internet to disrupt traditional retail and chose books as his starting point due to their wide appeal and ease of distribution. By offering a vast selection and competitive prices, Amazon quickly gained a foothold in the market.
The company’s initial public offering (IPO) in 1997 marked the beginning of its journey toward becoming a dominant player in the U.S. and global markets. Amazon’s early success was driven by its focus on customer satisfaction, an extensive inventory, and a commitment to fast and reliable delivery. This focus laid the foundation for its expansion into other product categories and services.
Diversification and Expansion
Amazon’s diversification strategy began with the introduction of new product categories, such as electronics, toys, and apparel. This move positioned Amazon as a one-stop shop for consumers, significantly expanding its customer base. The company also introduced its marketplace platform, allowing third-party sellers to offer their products alongside Amazon’s own inventory. This not only increased the variety of products available but also created a new revenue stream for the company through commissions on sales.
One of the most significant milestones in Amazon’s diversification was the launch of Amazon Web Services (AWS) in 2006. AWS provided cloud computing services to businesses, enabling them to rent computing power and storage rather than investing in expensive infrastructure. This service quickly became a cornerstone of Amazon’s business, contributing significantly to its profitability and establishing Amazon as a leader in the tech industry.
Amazon’s Role in E-Commerce
Transforming Retail
Amazon’s impact on the retail industry cannot be overstated. It has revolutionized the way consumers shop, shifting much of retail activity from brick-and-mortar stores to online platforms. The convenience of shopping from home, coupled with Amazon’s vast selection and competitive pricing, has led to a fundamental change in consumer behavior. This shift has forced traditional retailers to adapt, leading to the rise of omnichannel strategies that integrate online and offline sales.
The concept of “one-click shopping,” patented by Amazon in 1999, further streamlined the online shopping experience. This innovation reduced the friction in the purchasing process, contributing to higher conversion rates and reinforcing Amazon’s dominance in e-commerce. Additionally, Amazon Prime, launched in 2005, offered customers free two-day shipping and other benefits for an annual fee, further solidifying customer loyalty and increasing the frequency of purchases.
Impact on Small Businesses
While Amazon has provided opportunities for small businesses through its marketplace platform, it has also posed challenges. On the one hand, small businesses gain access to a vast customer base and the logistics infrastructure that Amazon offers. On the other hand, they face intense competition, not only from other third-party sellers but also from Amazon itself. The company’s ability to undercut prices and its control over the marketplace platform have led to concerns about fairness and market power.
Moreover, Amazon’s algorithms and data-driven approach to retail have raised questions about the transparency of how products are promoted and priced on the platform. Small businesses often struggle to achieve visibility without spending on Amazon’s advertising services, which can be costly. Despite these challenges, many small businesses continue to rely on Amazon as a vital sales channel, underscoring its central role in the U.S. retail industry.
Amazon in the Logistics and Supply Chain Industry
Revolutionizing Logistics
Amazon’s impact extends beyond retail into logistics and supply chain management. To fulfill its promise of fast and reliable delivery, Amazon has invested heavily in building a sophisticated logistics network. This network includes a vast network of fulfillment centers, advanced robotics, and a growing fleet of delivery vehicles, including drones.
Amazon’s logistics capabilities have set new standards for the industry. The company has pushed the boundaries of what is possible in terms of speed and efficiency, challenging traditional logistics providers like FedEx and UPS. Amazon’s commitment to customer satisfaction has driven innovations such as same-day and even one-hour delivery in select areas, further raising consumer expectations.
In-House Logistics Services
In recent years, Amazon has taken steps to reduce its reliance on third-party logistics providers by expanding its in-house delivery capabilities. The launch of Amazon Logistics, a service that uses independent contractors to deliver packages, is a testament to this strategy. This move has enabled Amazon to exert greater control over the delivery process and reduce costs.
However, this expansion has not been without controversy. Amazon’s use of independent contractors has sparked debates about labor practices and the gig economy. Critics argue that Amazon’s business model places financial and physical burdens on its delivery drivers, who are often classified as independent contractors rather than employees. This classification exempts Amazon from providing benefits and protections typically afforded to employees, such as health insurance and minimum wage guarantees.
Amazon Web Services: The Backbone of the Internet
Dominating Cloud Computing
Amazon Web Services (AWS) has emerged as one of the most significant contributors to Amazon’s success. As the leading provider of cloud computing services, AWS powers a vast portion of the internet, supporting everything from startups to large enterprises. Its services include computing power, storage, databases, machine learning, and more.
AWS’s dominance in cloud computing has had a profound impact on the tech industry. By providing scalable and cost-effective solutions, AWS has lowered the barriers to entry for new businesses, fostering innovation and entrepreneurship. Companies no longer need to invest heavily in physical infrastructure; instead, they can rent the necessary resources on demand from AWS.
Economic Impact and Innovation
The success of AWS has not only boosted Amazon’s financial performance but also contributed to the broader U.S. economy. AWS has created jobs, driven innovation, and supported the growth of numerous tech companies. Its services have become integral to the operations of many businesses, from streaming services like Netflix to financial institutions and government agencies.
AWS’s role in advancing technologies such as artificial intelligence and machine learning has also been significant. By making these technologies accessible through cloud services, AWS has enabled companies to develop new applications and services that were previously out of reach. This has spurred growth in sectors such as healthcare, finance, and entertainment.
Amazon’s Influence on Entertainment and Media
Amazon Studios and Prime Video
Amazon’s foray into the entertainment industry began with the launch of Amazon Studios and Prime Video. These platforms have become key players in the streaming wars, competing with giants like Netflix, Disney+, and HBO Max. Amazon Studios produces original content, including critically acclaimed series like The Marvelous Mrs. Maisel and The Boys, as well as feature films.
Prime Video, available as part of the Amazon Prime membership, has become a major driver of subscriber growth. By offering a mix of original content and licensed programming, Amazon has been able to attract a diverse audience. The company’s investment in high-quality content has not only boosted its streaming service but also positioned it as a significant player in Hollywood.
Impact on the Publishing Industry
Amazon’s origins as an online bookstore continue to influence the publishing industry. The company has become the largest bookseller in the world, both in physical books and e-books. The Kindle, Amazon’s e-reader, revolutionized the way people consume books, making digital reading mainstream.
However, Amazon’s dominance in the book market has raised concerns among publishers and authors. The company’s pricing strategies and negotiation tactics have led to disputes over revenue sharing and control. Amazon’s influence over the publishing industry extends to self-publishing, where its Kindle Direct Publishing platform allows authors to bypass traditional publishers and reach readers directly. While this has democratized publishing, it has also led to an oversaturation of the market and challenges in quality control.
Challenges and Criticisms
Regulatory Scrutiny
Amazon’s immense size and influence have made it a target for regulatory scrutiny. In the U.S. and abroad, lawmakers and regulators have raised concerns about the company’s market power, labor practices, and treatment of third-party sellers. Antitrust investigations have been launched to determine whether Amazon engages in anti-competitive behavior, such as favoring its own products over those of third-party sellers on its platform.
The company’s expansion into various industries has also led to concerns about its dominance and potential to stifle competition. Critics argue that Amazon’s control over data, logistics, and retail gives it an unfair advantage, making it difficult for smaller companies to compete. In response, there have been calls for greater regulation and even the potential breakup of Amazon into smaller entities.
Labor Practices and Workers’ Rights
Amazon’s labor practices have come under intense scrutiny, particularly in its fulfillment centers and delivery network. Reports of grueling working conditions, high injury rates, and inadequate breaks have sparked widespread criticism. Workers have organized protests and strikes, demanding better pay, safer working conditions, and the right to unionize.
The company’s use of technology to monitor and manage workers has also raised ethical concerns. Amazon’s reliance on algorithms to track productivity and enforce performance targets has been criticized for creating a dehumanizing work environment. The company’s resistance to unionization efforts has further fueled debates about workers’ rights and corporate responsibility.
Environmental Impact
As one of the largest companies in the world, Amazon’s environmental impact is significant. The company’s vast logistics network and rapid delivery services contribute to carbon emissions and packaging waste. Amazon has faced criticism for its role in driving consumerism and its contribution to environmental degradation.
In response, Amazon has pledged to become more sustainable. The company launched the Climate Pledge in 2019, committing to reach net-zero carbon emissions by 2040. Amazon has also invested in renewable energy, electric delivery vehicles, and sustainable packaging. While these efforts are a step in the right direction, critics argue that more needs to be done to address the environmental impact of the company’s operations.
