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Gift Tax: Do I have to pay gift tax when someone gives me money?

Gift Tax: Do I have to pay gift tax when someone gives me money? - TaxACT

Surprise – Mom and Dad gave you a nice check! Maybe it’s enough for dinner, or maybe it’s more of an “early inheritance.”

Either way, do you need to worry about paying tax on your gift?

Annual limits before the IRS takes notice

First, a gift must be quite substantial before the IRS takes notice.

A gift of $14,000 or less in a calendar year (2013) doesn’t even count.

If a couple makes a gift from joint property, the IRS considers the gift to be given half from each. Mom and Dad can give $28,000 with no worries.

A couple can also give an additional gift of up to $14,000 to each son-in-law or daughter-in-law.

The effective annual limit from one couple to another couple, therefore, is $56,000 ($14,000 X 4 = $56,000).

Gifts that don’t count

Some transfers of money are never considered to be gifts, no matter the amount.

For purposes of the gift tax, it’s not a gift if:

  • It’s given to a husband or wife who is a U.S. citizen. Special rules apply to spouses who are not U.S. citizens.
  • It’s paid directly to an educational or medical institution for someone’s medical bills or tuition expenses. (It doesn’t have to be a child, or even a relative, for this exception.)

Gift tax is not an issue for most people

The person who makes the gift files the gift tax return, if necessary, and pays any tax.

If someone gives you more than the annual gift tax exclusion amount ($14,000 in 2013), the giver must file a gift tax return. That still doesn’t mean they owe gift tax.

For example, say someone gives you $20,000 in one year, and you and the giver are both single. The giver must file a gift tax return, showing an excess gift of $6,000 ($20,000 – $14,000 exclusion = $6,000).

Each year, the amount a person gives other people over the annual exclusion accumulates until it reaches the lifetime gift tax exclusion.

Currently, a taxpayer does not pay gift tax until they have given away over $5.25 million in their lifetime.

Does the gift recipient ever have to pay gift tax?

If the donor does not pay the tax, the IRS may collect it from you.

However, most donors who can afford to make gifts large enough to be subject to gift taxes can also afford to pay the tax on the gifts.

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About Sally Herigstad

Sally Herigstad is a certified public accountant and personal finance columnist and author of Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Griffin). She writes regularly at CreditCards.com, Bankrate.com, Interest.com, RedPlum, and MSN Money. She is an experienced speaker and a member of Toastmasters International. Follow Sally on Twitter.

68 comments
GiftQuestion
GiftQuestion

My daughter is receiving a legal settlement that is in excess of $28K. She is a dependent on my tax returns. She will be gifting my spouse and I the money so we can establish a 3rd Party Funded Trust for her. What are the gift tax implications for her giving the money to us, and for us re-fifting it to the Trust?

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Breea
Breea

My boyfriend's parents would like to gift us $96,000 for a down payment so we can purchase a home they own. From my understanding, there are ways to avoid his parent's being taxed as long as they do not gift us more than $5.25 million throughout their lives? 

Jasondw
Jasondw

Can I file a return for my minor son using my TaxAct account or do I have to start a new account for his return?

erick
erick

I gave my exgirlfriend 12k over the year to support her. Does she need to pay taxes or do i?. Thank you.

Guest
Guest

If I am in the military (or a veteran) and I receive free tickets to local entertainment events/venues from a non-profit organization, do I have to pay taxes on the tickets I have received over the course of a year?

rajshah
rajshah

I am a non US citizen(Indian) and would like to pay for my friends son living in the US. He is a student, as a student he manages the tuition, but I would like to support his living expense. I would like to send $3000 every month to him.

Does he have to pay tax on this money received? Further do I have any tax liablity in the US since I am sending him this money? 

Margaret
Margaret

My adult daughter has a student loan in her name and we give her $650/month to pay the bill. She is able to write off the interest on her taxes. We are over the income limit so it doesn't appear it would make sense for us to have the loan in our name. Do we need to file anything with IRS for this? Also, if we decide to pay the $50K to pay off the loan, what are the ramifications there? Thank you!

Venky
Venky

Hello Gurus,

I received $6000 as kickback from my real estate agent when i purchased my new home ( State is Florida) in 2013. Basically out of his 3% commission (which was $9000) he gave me 2%.


Should i specify this while filing my tax returns this year?

If so which form to use and which line


Thanks in Advance

Venky

drewd77
drewd77

My wife is receiving money from here mother who is in South Korea. Her mom is giving us 50K to help us purchase a home. Are there taxes to be paid by us or her mother?

Rebecca42
Rebecca42

We paid off our daughters student loan money through her education account her grandfather set up. Since the student loans were in our names we now our receiving the interest write off form- can we claim this since the money came from another source? We do not claim our daughter on our taxes.

Skywalker
Skywalker

My brother just immigrated to USA on green card and wants me to buy a house for him in my name. He will pay the money for down payment, i.e.  50,000 to me as a gift. Will he or I need to pay tax on that 50K that he will give me as down payment for the house? The house deed and loan will all be in my name and we will transfer it over to his name after a year or two when he has enough credit to get a loan himself.

Vera40
Vera40

I have a question:  My mother is 65 yrs old, receives only $470 a month from SSI and gets $92 a month from food stamps and is on Medicare.  This is all that she lives on period - no other money.  She jumps around from daughter to daughter & we all take care of her other needs.  Her brother passed away & after all is said & done, the estate has $20,000 to be disbursed to her.  Can she receive this money without being kicked off of what little she already has?  Or, would it be easier to just have her 16 yr. old niece open up a savings acct and put the money in there?  She cant gift it to me because I am ready to file Chapter 13 and we don't want to gift it to my other sisters, for other reasons.  I just want to find a solution where my mother gets to have her inheritance, keep it, and not get kicked off of other programs.

Gump2
Gump2

Interesting.  I have a friend who inherited a ton of money (millions) and she intends to gift some of it to others; hopefully myself included.   What happens if she gifts me 20 million?   She would be liable for a gift tax over 5.x mil, and I would have to pay a capital gains tax on the rest as well -- but the IRS documentation is not clear on that scenario.   I called them and they aren't answering questions (our tax dollars hard at work!).   


What would I be liable for if this scenario were to take place?

draylan
draylan

Hi, what if you are a single parent. Are you allowed to gift double as for a couple?

harold263
harold263

if i give my son 14000 to pay student loans can i deduct it on my taxes

guest
guest

I received a cash gift of $100,000 last Dec. 2012 from an aunt.  She died last July.  She told me I wouldn't have to pay any taxes because it was a gift.  Now, her estate is advising that I will have to pay taxes, which is to be soon determined.  I don't know the value of her estate.  She resided in Pennsylvania.  Am I responsible for any taxes?

living the life
living the life

Hello, thanks for your response.

If I declare myself as a partner on the ticket, I live in NYC she lives in PA,

Pa has no lottery tax, NYC has a large lottery tax, how would that work? under what state would we pay? two different IRS payments?

Would I be able to pay less letting her pay PA tax as the sole winner and then have her gift it to me? What would she be taxed for the remaining 3ml not exempt from gift tax?

this seems confusing :(

living the life
living the life

If my sister wins the lottery takes lump sum payout and pays millions in lottery taxes and then gives me a gift of $8,000,000, she has all ready paid taxes to the Gov on the money when she received it.

Does she  pay taxes again on this money to give it to me? and would I have to pay taxes receiving the money?

The taxes have been paid, how many times can the Gov tax the same money?

Sally Herigstad
Sally Herigstad

No, you don't have to report gifts under the annual limit.

48ww
48ww

do all gifts have to be reported?  even gifts that stay under the $14,000 yearly limit?

korkfish
korkfish

Could you circumvent the $14,000 limitation by using intermediaries? If aparent wanted to gift $100,000 to their son, couldn't they "gift" $14,000 to several aunts and uncles who turn around and gift that money back to the son? I understand you would have to trust them to give the money, but I see no laws being broken even though the intent is to transfer the funds with filing a gift tax return. 

korkfish
korkfish

Can you circumvent the $14,000 limit by using intermediaries? I don't see how they could prevent parents from gifting $14,000 to several uncles, and then have them all turn around and gift it back to a nephew. You could have the parents effectively give much more than $28,000 to a single donee that way and it would appear perfectly legal. You just have to trust the uncles.

Macdebbe
Macdebbe

If not wealthy parents (one of whom is not well) give a $14,000 gift to their children but then their health declines and must be put in nursing home, how does that gift come into play? My mom was told that under those circumstances the government would check financial records for 3 years prior to the that time and would require the gift back. Is that true?

hyoti
hyoti

If my borther gives me a gift of $90,000, he would need to fill out the gift tax form, however, neither he nor I would pay any taxes on this because it is less than $5.250 million----is that correct?

MrsMac4145
MrsMac4145

If a parent give 14,000 to his/her children ( at the age of 62) and the funds are taken from a retirement account - what are the tax implications, if any ? 

Thank you.


Sally Herigstad
Sally Herigstad

The wife can't participate in gift splitting after she dies. At that point, her money is part of her estate.

MichelleRad
MichelleRad

A spouse dies in 2013, they both generally give a check to their son each for the allowed amount by the end of the year, I.e. generally for Christmas.... But the wife dies before Christmas... Can the husband write a check on his behalf and hers for 28,000.00 to their son.. Or does the wife's usual ability to gift not exist anymore because she can not physically write and sign the check????

SallyHerigstad
SallyHerigstad

@Breea

You are correct - your parents don't need to worry about gift or estate taxes until their total gifts and estate, after the annual gift exclusion amounts, exceeds the limit. For 2014, that limit is $5.34 million.


If they give you $96,000, they will need to file a gift tax return. However, no tax will be due.

Andrea Ward CPA
Andrea Ward CPA

If it was a discounted commission that was negotiated then it is not income to you.  But, if the realtor charged 3% through closing and then gave you 2% as a payment, then yes, this should be claimed s other income on your tax return.

Andrea Ward CPA
Andrea Ward CPA

The IRS requires that you aggregate all the gifts you receive from overseas.  So, if you got a gift from your wife's mother who is in Korea and then another individual who is outside of the U.S. during the same year, you would add them together.

If the total you received from individual who are overseas is less than or equal to $100,000 then you do not have to report the gift to the IRS using Form 3520.  The  receipt of the gift from a foreigner is never taxable to you as the recipient, just possibly reportable.  Just as an FYI to you, if you ever do receive over $100,000 from individuals who are overseas in a year, you really need to fill out the 3520 because the IRS imposes penalties if you fail to do so.

drewd77
drewd77

By the way we are in the U.S. and my wife her citizenship but her mother is a Korean citizen.

Andrea Ward CPA
Andrea Ward CPA

Yes, you can claim the interest if the statement is in you or your spouse's name and SSN.  The source of the funds used to pay off your loan is a nonissue here.

Andrea Ward CPA
Andrea Ward CPA

The funds from your brother is not taxable since it would be a gift.  But since it is over $14,000 and he would be a resident alien, he should fill out a gift tax return to let the IRS know this (it won't cost him any "real" money until he gives more than $5,340,000 total during life and at death).

And later when you gift him the house, if the equity is over $14,000 you would have the same obligation to report the gift of equity to the IRS too.

SallyHerigstad
SallyHerigstad

@Vera40 Receiving a $20,000 inheritance can disqualify your mother from SSI benefits, both in the month she receives it, and as long as she has the resources available.


According to the Social Security website (http://ssa.gov/ssi/), the resource limit for an individual is $2,000 before benefits are reduced. This does not count the value of one vehicle, her home and land (if she had any), and up to $1,500 in burial funds, among other things.


Shuffling the money to someone else is not the answer for several reasons:

* There are trust issues, and the possibility that the person who holds the money could have money problems of their own.

* The money is designated to her in the estate, so it is income to her, even if she gives it away.

* Having someone else hold money so a person qualifies for SSI benefits is fraud.


Because you and your sisters have been paying her expenses, it is reasonable that she could reimburse you with some of her inheritance. She could buy a car, if she doesn't have one, if she wants to use some of the inheritance, or prepay burial expenses.


A better idea, however, is to hang on to that money and use it to pay her expenses as long as possible. I'd rather see her hang on to her money and stretch it as far as possible than to worry about losing a paltry $472 in benefits.

Andrea Ward CPA
Andrea Ward CPA

This is your lucky day if you get $20 million from a person as a gift because gifts are tax free to the recipient.  However, your friend will be filing a gift tax return since she gave you more than $14,000 and having to pay the government on the excess amount over the $5.34 million that can be passed through life or death in 2014.

Andrea Ward CPA
Andrea Ward CPA

You are allowed to give a person up to $14,000 per year before you have to report the gift to the IRS on Form 709.  If I understand your question correctly, you are asking if you could double it like a couple can.  The answer is no, you are not allowed to do this without report the excess over $14,000 to IRS.  But, the other parent can give the child $14,000 in addition to your $14,000.

Andrea Ward CPA
Andrea Ward CPA

Unfortunately gifts are not tax deductible by the donor.  And giving your child $14,000 is a gift.  However, if the student loans were in your name and you were to pay the loan company instead, you may be able to deduct the student loan interest up to $2500 in 2013 as long as your adjusted gross income does not exceed the limit for your filing status.

hrblock tax prep
hrblock tax prep

@living the lifeYou never pay gift tax. only the giver has to pay the tax . She will have to pay the tax again but only on amount over 5ML. Government collects tax over and over again. When you sell a used car.

It would be better if she declared you are partner to the winning ticket.

Andrea Ward CPA
Andrea Ward CPA

You brother reports the gift on Form 709 which is a merely a tally form until he gifts more than the limit.  After he passes the limit, then he or his estate will have to pay money for passing property by gift or inheritance.  In this case, $90,000 - $14,000 = $76,000 that counts towards the $5.25 million that he can give during life or after death.

The Doc
The Doc

@hyoti  You wouldn't have to pay any taxes unless your brother didn't pay the taxes on the amount over $14,000, which in this case would be on $76,000 or at least that's how I'm reading this. This really only covers what the person giving the gift has to pay or how much they can give before paying, doesn't really hit on the gift recipient, or if it does I'm not getting it here.

MichelleRad
MichelleRad

So if her husband is still alive, wisconsin, then he is joint owner thus wife's estate can't donate... because it must be a live person doing gifting right?

drewd77
drewd77

@Andrea Ward CPAThank you. This is what my wife is saying but I wanted to make sure since she is working on getting her CPA and I don't want costly surprises.

Gump2
Gump2

Strangely, no documentation I have found on the IRS website tells you what percent rate the gift tax is. Do you have this information?

Sally Herigstad
Sally Herigstad

@MichelleRad She can't donate as a live person after she dies. If her husband had a Power of Attorney for her, that doesn't help. A Power of Attorney expires when someone dies. After death, the estate must be handled according to state laws.

Andrea Ward CPA
Andrea Ward CPA

@andy1m@Andrea Ward CPA

You aggregate the gifts from foreign persons that are related (for instance a mother in law and a brother in law).  If the aggregated gifts exceed $100,000, it is reported on the 3520.  This is an information return that the IRS requires.  So, it is by the donor that determines the reporting, not the recipient.

Andrea Ward CPA
Andrea Ward CPA

I would suggest you make a note on your deposit slip that says where the money came from and then also ask your mother in law to write a letter (even if in Korean) to say that she is giving you $50,000 as a gift.  Then if IRS were to audit, you would have proof to back up the deposit.

drewd77
drewd77

@Andrea Ward CPAone other question though. Is anyone going to ask us about the 50K deposit we made to our bank account?