Gift Tax

[S T]

I have not prepared a Gift Tax Return, but can now see, that I will have to watch this more closely and ask more questions.

Parents want to give daughter and new son-in-law money toward a down payment on a house.

Gift tax consequences would be anything over $ 52,000, correct $ 26,000 to each

Parents would like to gift $ 80K-$100K to daughter and son-in-law - - A gift tax return would have to be filed individually for each of the parents-- for the amount over the $13,000 to each individual, but the amount over the $ 13,000 would have no Gift tax consequence, as it would be within the $ 5Million lifetime exemption?

Am I understanding this correctly for year 2012 for this particular scenario?

Thanks,

Sandy

[Jesse]

Sounds correct to me.

[mblatour]

Thanks...

for the the post Sandy. I've run into a similar scenario for my first time. It's hard to take time during tax season to read up on things we may not be familiar with. That's why I love having the support of this board!

Becky

[Burke]

Basically that is correct. However, I am curious as to how these will be affected when the estate tax exemptions change -- as they have done for the last 10+ years. If the exemption is reduced in the future, will the tax be automatically triggered? What if it is raised again? Do we just wait until death and try to make it right at that point?

[S T]

Got to thinking about this, so thanks for the post Burke,

A bigger concern right now - is finding the source of the income to pass the gift on to the kids.

A what if --are the parents who want to assist the kids with down payment of a house, but have limited liquid cash - and decide to take the money from "taxable retirement accounts" or what if they decide to take a loan out on their house (parent) to be able to afford to give the "kids" the $$

All of a sudden we have a Parent's Income Tax Issue

Just some thoughts,

Sandy

[natiro]

Gift tax

This doesn't address where the funds would come from but I believe the transaction can be structured this way to avoid having to file gift tax returns. Gift $52,000 in the first year. Make a loan of the remaining funds. Foregive the loan in the second year as a gift. You might have to include interest on the outstanding debt as part of the $52,000 gifted in the first year, and again on the amount foregiven in the 2nd year. But from the amounts you noted below, it seems like all the funds would be gifted by year 2, and there would be no need for a gift tax return. It's late and it's been a long day, so this might not be a great explanation, but hopefully it makes sense.

Do the parents have any non-retirement stock/mutual fund investments that can be sold for this transaction which, with careful planning would leave them with little gain? Just a thought.

Good luck!

[oceanlovin'ea]

glad you brought this up

I am so glad you brought this up and so glad I read the board this morning. I have a new client who came in last week. I am working on his return.
He took his retirement money out last year....old enough so no penalty but large increase in income. He bought a house for each of his sons....paid cash for each one. Told them this is their inheritance...not to expect anything when he dies (which won't be soon).

But this case is a little different. House for son #1 is in son's name and client's wife's name. House for son #2 is in son's name and his name. So he would only be gifting half of each house to son(s).

I will need to work this out before he comes back in.

Linda, EA

[Burke]

There are 3 gifts. One to son #1, (1/2 of house),one to wife-of-son #1, (1/2 of house) and one to son #2 (1/2 of other house.)