Gifting is a bad idea for the donor and here’s why:

In 2007 an individual may gift $12,000 annually to others without having to file a gift tax return. So assuming both buyer and buyer’s wife are gifted $80,000, $24,000 is the gift ceiling and the donor (seller) has to report a gift of $56,000 to the IRS in 2007. That’s o.k. now, except – that $56,000 eats into the seller’s eventual (at death) exclusion from estate tax. This exclusion is called the Unified Credit and you can read about it in IRS Pub. 950. So, assuming the seller dies with an estate, then $56,000 of that estate that should have been free from estate tax will now be subject to estate tax. Why in the world would the seller want to give a gift to a stranger that would eat into their Unified Credit?