Discussion:Is gift to sister taxable
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Discussion Forum Index --> Tax Questions --> Is gift to sister taxable
| 11 January 2008 | |
| I have a client, who received a gift of $25,000 from her brother and his wife in January of 2007, for the purchase of her house.
1. Does the brother have to file a form 709 and pay on the $25,000.00 gift, or the amount after the exclusion which would be $13,000.00. An attorney told her that no return would have to be filed, since the gift was for the purchase of a house. If he has to pay any tax on the money he wants her to pay him back. Thank you for your help. SEBROFS | |
| January 11, 2008 | |
| The gift tax exclusion for 2007 was $ 12000. Brother could give sis $ 12000, wife could give sis in law $ 12000 for a total of $ 24000. No gift tax return needed. The fact the money was to buy a house is irrelevant. Sounds like sis should 'refund' $ 1000 to keep bro from the filing requirements. | |
| 11 January 2008 | |
| The attorney was right - but for absolutely the wrong reason. Purchase of the house has nothing to do with the gift tax issue.
When you're talking about estate and gift taxes, the tax obligation, IF ANY, is on the DONOR, NOT THE DONEE. The "gift" is the transfer of title/ownership of assets - not the physical possession of items given. Now - to determine if the brother and sister in law need to file a Form 709 - depends on how the check was made out. Did the brother and spouse issue 2 different checks for $12,500 - or was one check made out for $ 25,000? Whose bank account was the check drawn - a joint account or an account of only 1 spouse? Regardless of what the answer is above - one way or another a Form 709 needs to be filed because it exceeds the annual exclusion. It's just a question of whether 1 or 2 709s need to be filed. No money is due with the return - it's just an information form letting IRS know that part of the lifetime exclusion has been used up. | |
PostingFromWork (talk|edits) said: | 11 January 2008 |
| The attorney is wrong. A gift tax return needs to be filed.
The brother and his wife can split the gift, which would treat it as two gifts of $12,500. The annual gift exclusion would be applied twice leaving a "net gift" of $1,000. The couple undoubtably has enough unfied credit left to absorb any tax on the $1,000. Or the couple can treat the $1,000 as a loan (meaning a bona fide loan that charges interest) in which case, the $1,000 wouldn't be considered a gift. | |
| January 11, 2008 | |
| US - Is the exclusion for 2007 $ 12000 or $12500...I looked it up before I posted, but my eyes are betraying me today in many areas.
Good points tho about separate checks, I didn't think it thru.....do you think they could claim the $$ over the exclusion were a loan if sis pays back ASAP or is that a bit sketchy? | |
PostingFromWork (talk|edits) said: | 11 January 2008 |
| Well, on a scale of Leona Helmsly to HR Block, it probally rates a bit above Jackson Hewitt, since we all know how clients follow formalities. I've seen arrangments where it was all a loan, but the interest was gifted every single year as well as part of the principle.
With a married couple, I am not convinced that seperated checks are neccessary. I'm pretty sure that the exclusion for 07 is still 12,000, but the 2007 709's havn't been published yet. | |
| 12 January 2008 | |
| It's $12,000 for gifts made in 2006, 2007 and 2008. Rev Proc 2006-53, Sec. 3.32(1), 2006-48 IRB 996; Rev Proc 2005-70, Sec. 3.28(1), 2005-47 IRB 979; Rev Proc 2007-66, Sec. 3.32(1), 2007-45 IRB. | |
Michaelstar (talk|edits) said: | 12 January 2008 |
| Posting - if the $1,000 was being treated as a true loan - no interest need be charged - this is below the $10k amount for when interest must be computed. This "loan" of $1,000 could be gifted in the second year. | |
| 21 January 2008 | |
| I Am a bit confused still. Could someone just tell me my best option for the situation I am in. Myu wife and I are buying a home but we are short about $25,000 which a GOOD friend said he would loan us with no conditions on when to pay back the loan. Quote "I don't care if I am dead and buried and you pay my wife, there is no pressure. I just want to do this for you guys since I have the money to do it." Did I mention he is a really good friend? So, what would be my best course of action here where niether of us gets taxed to death? Any advice? | |
| 21 January 2008 | |
| Robman: Your "friend" can give you $12,000 and your wife $12,000. Since I'm assuming your friend is married, his wife can give you $12,000 and your wife $12,000. That's a total of $48k. If he wants to give you $25k as a gift and make sure that he doesn't "owe" any taxes or reduce his "estate exclusion" - his best bet would be to write a check to you for $12k, your wife $12k and then have his wife write a $1k check to you.
Alternatively, to make it simple he could write a check of $24,000 from a joint account controlled by both him and his wife to you, and a check for $1k to your wife from the same account. Of course - this is a GIFT. Which means that there are no "strings" attached in regards to repayment (not even pay me when I'm dead and buried) - a good mortgage broker/loan company is likely to make your friend sign an affidavit to that regard. And lastly, you know what happens when you borrow money from friends... DISCLAIMER: I AM NOT A CPA or EA. I am a tax preparation professional having prepared (as a business) individual and corporate tax returns for 5 years now. Also, please consider this advice to be worth exactly what you paid for it :-) | |
