Gifting of Land

[ConnorandCo]

I have a client who has 2 children. She owns around 26 acres worth say 150k for simplicity. Now she wants to break that up and give half to each son for Christmas. I have advised that if she does that she will owe gift tax on the amount over 28k for each son. Since she is married they can gift split 28k to each. So she would be on the hook for the gift tax above the gift exemption correct?

The solutions I see are to break the land up and give it them each year under the gift exemption, or wait and let them inherit it correct?

[RitaB]

I'm no expert

I have a client who has 2 children. She owns around 26 acres worth say 150k for simplicity. Now she wants to break that up and give half to each son for Christmas. I have advised that if she does that she will owe gift tax on the amount over 28k for each son. Since she is married they can gift split 28k to each. So she would be on the hook for the gift tax above the gift exemption correct?

The solutions I see are to break the land up and give it them each year under the gift exemption, or wait and let them inherit it correct?

The donor won't owe gift TAX unless her lifetime gifts exceed 5.34 million or so.

Yes, they can avoid the gift tax RETURN filing requirement by gifting under the applicable exclusion amounts in multiple years. In 2014 it's $14,000.

http://www.irs.gov/pub/irs-pdf/i709.pdf

One problem with gifts is that the basis to the donee is the donor's basis. If the land is inherited by the kids, the kids' basis is the FMV on the date of death of parent, which is likely to be higher.

[ConnorandCo]

donee

The donor won't owe gift TAX unless her lifetime gifts exceed 5.34 million or so.

Yes, they can avoid the gift tax RETURN filing requirement by gifting under the applicable exclusion amounts in multiple years. In 2014 it's $14,000.

http://www.irs.gov/pub/irs-pdf/i709.pdf

One problem with gifts is that the basis to the donee is the donor's basis. If the land is inherited by the kids, the kids' basis is the FMV on the date of death of parent, which is likely to be higher.

But the donees would have taxable income of the value of the land over the gift exclusion correct figure of 28K?

[RitaB]

Nope

But the donees would have taxable income of the value of the land over the gift exclusion correct figure of 28K?

The recipient of the gift does not receive taxable income. The donor is the only one who may owe tax on a gift. Here's a good article:

http://www.nolo.com/legal-encyclopedia/the-federal-gift-tax.html

[Burke]

So she would be on the hook for the gift tax above the gift exemption correct?

Only if this and all her lifetime gifts exceed the rather large exclusion amount of $5+ million. And she isn't close. She files a gift tax return (Form 709) since it is over the exclusion amount, as Rita says, but no tax is paid at this time -- maybe never. That would be reassessed at her death. If you mean, do the children report anything on their income tax return, no. That has never been true. Just be aware that when the children sell the property, they may have a taxable capital gain (i.e, sale price less donor's original basis).