Tips from SmartMoney.com. If you're thinking big for junior's holiday gift - as in down-payment-on-a-home big - there's good news. Along with the warm and fuzzy feelings parents will get, there's also a tax advantage.

The IRS allows parents to give up to $13,000 annually to their child, or other recipient, without incurring a gift tax, says Troy Von Haefen, a certified financial planner in Nashville, Tenn. The cap increased $1,000 in 2009 from last year's $12,000 cap in tax year 2008.

Conceivably, a married couple could give four times that - up to $52,000 to their child and their married child's spouse, tax free. Giving more than $13,000 to one person would eat into your lifetime gift-tax exclusion, which is $1 million for individuals.

The newly extended and expanded home buyer tax credit is an additional incentive for parents to help their children buy a house now with their gift. The deadline - both for the first-time home buyer credit of up to $8,000 and the existing homeowner credit of up to $6,500 - is April 30, 2010. With a signed contract, you'll be able to close through June 30, 2010. The tax credit only applies to homes purchased for $800,000 or less.

There are stipulations to keep in mind with this kind of transaction.

Documentation is required - Make sure any transfer of funds to your child happens before they apply for a mortgage loan. Documentation must be provided to show the down payment money is, in fact, a gift and not a loan. The donor must show the source of their funds - usually providing a bank or other account statement. If the donor isn't comfortable with this, they could get a letter from their financial institution verifying that the donor is an account holder and they have the money to donate.

The gift letter should be signed by both the donor and mortgage applicant stating that the funds are a gift and no repayment is required. The letter also has to specify the dollar amount that will be given, the donor's relationship to the applicant and assert that the funds are not coming from anyone who has an interest in the sale of the property. You'll want to make a copy of the gift check and the deposit receipt. Paramount Mortgage Bankers can provide you with an example of a gift letter and any help you'll need.

Borrower might still have to contribute to the down payment - The rules for gifting money for a down payment depend on whether the mortgage is a conventional loan or an FHA loan. For a conventional mortgage where the buyer has less than a 20% down payment, they'll need a minimum of 5% from their own funds in the transaction. But if a parent gifts his or her child 20% or more of the home's purchase price, there's no need for the borrower to put in their own money because the loan-to-value (LTV) ratio will fall within acceptable limits. For an FHA loan, however, the down payment can be 100% from a gift.