Gift tax - question

[disneypharm]

After going through the IRS website, Googling, and actually talking to a lawyer (not a tax lawyer), I still am confused about what I have to do!! So, I have decided to ask the Budget board. Oh, and I will be contacting a tax lawyer on Monday. Here is the email my mother sent to IRS about giving me and my husband gifts:

"I read on the IRS website the annual exclusion applies to gifts: $13,000 on or after January 1, 2009.
Here is my question: If I decided to "Gift" $50,000 worth of property to my daughter and her husband ($26,000 for both), would the remaining $24,000 be subject to taxation immediately or can be deferred under the Unified "credit" against federal Estate and the Gift Taxes, paid later from my Estate upon my death.
Also my daughter and her husband would not have to pay tax on this "gift" as it would be deferred under my Estate Tax.
Am I understanding this tax law correctly? Thank you in advance."

 

[Cheshire Figment]

You are correct. Under the "Unified Transfer Tax" rules (which is a combination of Gift Tax and Estate Tax) "One person may give one other person up to $13,000 in gifts per year without incurring Gift Tax liability".

This means that yo can give your daughter and her husband each $13,000 per year.

The other $24,000 would be reported on IRS Form 709, the Gift Tax Return, which is not complicated at all. And because of the "Unified Credit" there would be no payment required. The only way there may be a tax effect is if your total Estate plus Gifts exceed $3,500,000.

Mike (CPA Retired)

 

[disneypharm]

You are correct. Under the "Unified Transfer Tax" rules (which is a combination of Gift Tax and Estate Tax) "One person may give one other person up to $13,000 in gifts per year without incurring Gift Tax liability".

This means that yo can give your daughter and her husband each $13,000 per year.

The other $24,000 would be reported on IRS Form 709, the Gift Tax Return, which is not complicated at all. And because of the "Unified Credit" there would be no payment required. The only way there may be a tax effect is if your total Estate plus Gifts exceed $3,500,000.

Mike (CPA Retired)

Thank you for your quick response. My mother actually emailed the IRS this morning about giving me and my husband the gift and I just copied her email to my first post. She doesn't have a Disboard account so I decided to ask for her.
Anyway, this is a good news. She hasn't heard from the IRS yet.
Thanks again

 

[deva]

If she wants to give you a one time gift of 50K, split it between 2 years since we are close to year end (i.e give you each 13K by tomorrow and then give you each 12K in early 2011). Then she will not use any unified credit.

Also remember the exclusion applies to ALL gifts (bday, holidays etc.), so if she gave you ANYTHING else substantial over the course of the year she'd be using more unified credit.

 

[disneypharm]

If she wants to give you a one time gift of 50K, split it between 2 years since we are close to year end (i.e give you each 13K by tomorrow and then give you each 12K in early 2011). Then she will not use any unified credit.

Also remember the exclusion applies to ALL gifts (bday, holidays etc.), so if she gave you ANYTHING else substantial over the course of the year she'd be using more unified credit.

Thanks. Good information. I'll let her know.

 

[Swimalie]

And also, make sure it's in the form of a check. If she gives cash (and it has happened) over $10,000 then she'll get on a nice little Treasury Dept check list. My husband watches this list for a living.

 

[goodeats]

Maybe it's just a little too early, and I'm confused, but if your married and your daughter is married I believe you can give $52K without triggering the gift tax guidelines. $13 each from you to daughter and SIL and then $13 each from your DH to daughter and SIL. That's the way we learned it in school, but I would research if it needs to be in separate checks or not.

Although some people aren't comfortable gifting in-laws money either.

ETA - OH, this is your mother gifting to you? Never mind, it's too early.

 

[disneypharm]

And also, make sure it's in the form of a check. If she gives cash (and it has happened) over $10,000 then she'll get on a nice little Treasury Dept check list. My husband watches this list for a living.

Wow , who gives cash for those amounts?

Thank you all. I added a sentence to my original post. The gift is from my mother to me and my husband.

 

[Cheshire Figment]

To add a few suggestions.

Since this is Real Property, I would suggest that a formal (certified) appraisal of the property be done to protect you and your mother. This way she can be sure that the amount reported as the gift is accurate.

Of course, it will have no effect on you.

Another thought - you will need to know your mother's basis in the property. Since it is a gift, when it is sold it is her basis that is used for the computation of gain or loss. If it had been jointly owned by your mother and father, and he died while they owned it, there are other factors which will affect the tax basis (for gain or loss) of the property.

 

[disneypharm]

To add a few suggestions.

Since this is Real Property, I would suggest that a formal (certified) appraisal of the property be done to protect you and your mother. This way she can be sure that the amount reported as the gift is accurate.

Of course, it will have no effect on you.

Another thought - you will need to know your mother's basis in the property. Since it is a gift, when it is sold it is her basis that is used for the computation of gain or loss. If it had been jointly owned by your mother and father, and he died while they owned it, there are other factors which will affect the tax basis (for gain or loss) of the property.

My dad is still alive and healthy. The property is actually on my mother's name only. I'll check with her about the basis. Good information. We were planning to do a certified appraisal as well. Do you know how the transfer will be done? My dad is planning to take care of it but I am not sure how he is planning to do that. They have other properties on both their names but they would keep those.

 

[tasha99]

If she thinks she would possibly use medicaid in the next 5 years she should speak with an attorney before doing anything like that to ensure that she isn't messing up her eligibility.

 

[disneypharm]

If she thinks she would possibly use medicaid in the next 5 years she should speak with an attorney before doing anything like that to ensure that she isn't messing up her eligibility.

No worries. They have other properties and too much assets to qualify for medicaid. Thanks for the advice.

 

[LadyBeBop]

My dad is still alive and healthy.

That changes everything for the better. Even though the property is entirely in your mother's name, I'm pretty sure your parents can split the gift (each of your parents give $12.5K to you and your spouse). That would not trigger the gift tax or unified credit. However, both parents would have to file a gift tax return showing the split gift.

 

[Swimalie]

Wow , who gives cash for those amounts?

Thank you all. I added a sentence to my original post. The gift is from my mother to me and my husband.

You would be surprised. It's enough to have an entire Fed office full of people.

 

[disneypharm]

That changes everything for the better. Even though the property is entirely in your mother's name, I'm pretty sure your parents can split the gift (each of your parents give $12.5K to you and your spouse). That would not trigger the gift tax or unified credit. However, both parents would have to file a gift tax return showing the split gift.

Really? That would be great! Thanks