Tax Guru – Ker$tetter Letter

Q:

Subject:  gifts of 13,000

Good Afternoon,
 
If I am reading it correctly, it states that a married couple  can receive up to $52,000 a year.
Would it be done like this, My mother writing a check out for 13,000 to both my husband and I and then my dad writing a check for $13,000 to both my husband and I. Now the money would be out of the same account with both their names on the check. One signing 2 checks and the other signing the other 2 checks.  We are in Ct and they are in North Carolina. We are trying to buy a house and they want to give us money. Thank you.

A:

Gifting strategies are the kinds of things you and your parents should be discussing with your own personal professional tax advisors because there are several different ways in which they can be structured.

I noticed some aspects of gifting that you appear to be confused about.

First, there is no maximum amount of gifts that can be received.  For the recipients, gifts are exempt from income tax.  However, if you were to be given non-cash items, such as stocks or real estate, that have appreciated in value since your parents purchased them, there could be tax consequences when you sell them because you are required to maintain your parents’ cost basis.

From the givers’ (your parents) perspective, there is also no maximum that they can give away in a year.  However, if either of them were to give any person more than $13,000 during a single calendar year, they would be required to file a Gift Tax return (Form 709) to report that to IRS.  There is also a lifetime exemption of one million dollars of gifts per giver, so even if they exceed the annual $13,000 limit, they wouldn’t have to actually pay any gift tax until they have used up the million dollars.

There is a provision in the tax law allowing for married couples to split their gifts if they are made by only one spouse from his/her separate money.  This enables both spouses to use their $13,000 annual exemption.

In the proposed plan that you mentioned, it sounds as if the bank account is jointly owned, so each could give you $13,000 and your husband another $13,000 without the need for any gift tax returns or gift splitting.  Added all together, that would be $52,000.

This was a rather lengthy way to say that your plan appears valid. However, there are ways to transfer even larger amounts of money without exceeding the annual limits that should be discussed with your own personal professional tax advisor.

For example, if you needed $200,000 right now, your parents could gift you the $52,000 in 2009 and loan you the additional $148,000.  In future years the principal of the loan could be forgiven as gifts in those years in increments of $13,000 or whatever the annual limit is in those years.

I hope this helps.

Good luck.

Kerry Kerstetter

Follow-Up:

thank you so much for getting back to me.