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My parents are older and looking to down size. They want to sell their house (paid off) and give us the proceeds and then
get a nice small place to live. They want to do this so we can use the money now and avoid inheritance tax. Question is
will they have to pay any taxes if they gift the monry to us? I am so appreciative of what they want to do, but don't want to have
them saddled with any taxe consequences. Any advice?
Any money gifted over 14K (2016) from an individual is taxable to you or the donor. Which sucks.
If both of your parents are living, they can double it up to 28K. My dad is disbursing 14K a year to my brother and I each, which doesn't suck free and clear from taxes I'll admit, and he doesn't live in a state that collects inheritance tax and the federal exemption line is pretty high, way more than most estates are worth.
Beyond that you probably need to get creative: there are family loans which can be done, just make sure you follow the IRS interest guidelines and do it in writing legal style (can find templates off Nolo and others) for up to 100K if you need the money now and then your parents can basically just pay off the loan for you at the maximum gift annually though to be legal beagal style you might need to shuffle the 14K back and forth (note: some IRS loans have massive restrictions on them on investment income and similar so look into it carefully), I didn't quite get that far when I looked into it. I don't personally know any other tricks for doing what you're suggesting without paying a gnarly tax penalty... anything complicated is probably worth talking to an estate planner.
@busyone wrote:My parents are older and looking to down size. They want to sell their house (paid off) and give us the proceeds and then
get a nice small place to live. They want to do this so we can use the money now and avoid inheritance tax. Question is
will they have to pay any taxes if they gift the monry to us? I am so appreciative of what they want to do, but don't want to have
them saddled with any taxe consequences. Any advice?
It really depends on how much they are planning to give:
So, your parents will need to pay a Federal Gift Tax on anything above $10.9M minus any gifts they've ever given over the annual exclusion (i.e. $14K per parent for 2016).
If they live in CT, they will have to pay Connecticut gift tax on anything above combined $4M minus any gifts they've ever given over whatever exclusion.
Even if they plan to give away less than $10.9M, they still will need to file a Federal (and State, if applicable) Gift Tax return on any amount they give over $28K ($14K per parent) per person even if they won't pay any tax on it. So if, for example, they give 3 people $200K each, your parents will have to file a gift tax return on ($200K - 28K) x 3 = $516K. This will reduce their combined lifetime estate exemption to $10.384M.
BTW, if your parents are liable for any gift tax and they don't pay it, the recipients are on the hook.
As ever, check the current regulations or with a professional. Don't just blindly trust what you read on forums.
@Revelate wrote:Any money gifted over 14K (2016) from an individual is taxable to you as income. Which sucks.
This is not correct. Gifts are NOT considered income and receiver does not have to report on their tax return.
@tacpoly wrote:
@Revelate wrote:Any money gifted over 14K (2016) from an individual is taxable to you as income. Which sucks.
This is not correct. Gifts are NOT considered income and receiver does not have to report on their tax return.
Your assumption is not correct - Gifts can be taxable as outlined by the IRS and summarized below (and) correctly by previous posters on this thread.
http://blog.taxact.com/gift-tax-do-i-have-to-pay-gift-tax-when-someone-gives-me-money/
https://www.moneyunder30.com/gift-tax
http://www.bankrate.com/finance/retirement/know-the-gift-tax-rules-1.aspx
@pipeguy wrote:
@tacpoly wrote:
@Revelate wrote:Any money gifted over 14K (2016) from an individual is taxable to you as income. Which sucks.
This is not correct. Gifts are NOT considered income and receiver does not have to report on their tax return.
Your assumption is not correct - Gifts can be taxable as outlined by the IRS and summarized below (and) correctly by previous posters on this thread.
http://blog.taxact.com/gift-tax-do-i-have-to-pay-gift-tax-when-someone-gives-me-money/
https://www.moneyunder30.com/gift-tax
http://www.bankrate.com/finance/retirement/know-the-gift-tax-rules-1.aspx
Where in the links you provided does it say that the receiver has to report a gift as taxable income in their income tax return? In fact, those links mostly address the tax consequences for the giver. The giver is the one who needs to file the gift tax return and paying the gift tax if necessary (see my first post above).
4th bullet from the bottom:
https://turbotax.intuit.com/tax-tools/tax-tips/Taxes-101/What-Is-Taxable-Income-/INF15613.html
And finally, the actual relevant source, see p.32 middle column of Publication 525 of the IRS:
https://www.irs.gov/pub/irs-pdf/p525.pdf
"Gifts and inheritances. In most cases, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you."
Tacpoly... You can fight the notion if you want, but the bottom line is that gifts over a certain limit ARE taxable - either by giver or receiver, the IRS really don't care who pays. In addition to "someone is going to pay" should the giver refuse to pay or die, or move to Italy, or whatever then 100% of the "tax" goes on the receiver.
Semantics..... I stand by the posts (including mine) that outline that certain gifts and amounts ARE taxable.
Add: I could offer several examples where "gifts" were given by a boss/relative/etc where neither the gifter or receiver "reports" say a $20k "gift" but kick that up to say $100k which is a bit harder to hide. I'm not talking about CAN it be done (not reported and taxed), I'm saying what the rules are, that's all.
@pipeguy wrote:Tacpoly... You can fight the notion if you want, but the bottom line is that gifts over a certain limit ARE taxable - either by giver or receiver, the IRS really don't care who pays. In addition to "someone is going to pay" should the giver refuse to pay or die, or move to Italy, or whatever then 100% of the "tax" goes on the receiver.
Semantics..... I stand by the posts (including mine) that outline that certain gifts and amounts ARE taxable.
Add: I could offer several examples where "gifts" were given by a boss/relative/etc where neither the gifter or receiver "reports" say a $20k "gift" but kick that up to say $100k which is a bit harder to hide. I'm not talking about CAN it be done (not reported and taxed), I'm saying what the rules are, that's all.
You jumped on and started criticising me without understanding my post to Revelate. I am not fighting the notion that a GIFT TAX may be imposed on gifts over a certain amount -- read my first post on the gift tax! What I am saying is that Revelate is WRONG in stating that the RECEIVER must pay INCOME TAX on the amount above $14,000. Gifts are not income. I posted a link to the IRS document/regulation that proves my position. Post the regulation that says that gifts (and don't put it in quotes, gifts are specifically defined for tax purposes) are subject to income tax.
This is not semantics and you know it (or maybe you don't). The IRS differentiates between INCOME TAX and GIFT TAX -- for one thing, the rate is different, for another, it's a completely different form that gets filled out.
@tacpoly wrote:
@pipeguy wrote:Tacpoly... You can fight the notion if you want, but the bottom line is that gifts over a certain limit ARE taxable - either by giver or receiver, the IRS really don't care who pays. In addition to "someone is going to pay" should the giver refuse to pay or die, or move to Italy, or whatever then 100% of the "tax" goes on the receiver.
Semantics..... I stand by the posts (including mine) that outline that certain gifts and amounts ARE taxable.
Add: I could offer several examples where "gifts" were given by a boss/relative/etc where neither the gifter or receiver "reports" say a $20k "gift" but kick that up to say $100k which is a bit harder to hide. I'm not talking about CAN it be done (not reported and taxed), I'm saying what the rules are, that's all.
You jumped on and started criticising me without understanding my post to Revelate. I am not fighting the notion that a GIFT TAX may be imposed on gifts over a certain amount -- read my first post on the gift tax! What I am saying is that Revelate is WRONG in stating that the receiver must pay INCOME TAX on the amount above the $14,000 gift tax exclusion. Gifts are not income. I posted a link to the IRS document/regulation that proves my position. Post the regulation that says that gifts (and don't put it in quotes, gifts are specifically defined for tax purposes) are subject to income tax.
This is not semantics and you know it (or maybe you don't). The IRS differentiates between INCOME TAX and GIFT TAX -- for one thing, the rate is different, for another, it's a completely different form that gets filled out.
It would've been helpful to put a little more detail in it than to say it's not taxable .
That "traditionally the donor pays" in IRS land, I did miss that verbiage before, somehow, when I looked at this a while back (5ish years ago when I looked at details). Where did you see the tax rate is different if the receiver is paying it though? I'll have to look more.
Either way you have legit points, and I was wrong on some of my information.