Discussion:Taxes on Gifts Received?
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| 16 December 2006 | |
| If my spouse receives a gift of $12,000 from my mother in 2006, do we (married filing jointly) have to pay taxes on that gift? As I understand it, my mother does not have to pay taxes on the gift she gives my spouse, but is it necessary for us to report this? If so, how do we categorize it?
Additionally, this gift will be used to pay for some upcoming medical expenses in 2007. Assuming that we would owe taxes on the gift, is there any strategy I can implement to minimize the tax burden? Thanks | |
Death&Taxes (talk|edits) said: | 16 December 2006 |
| No tax is paid on the gift, no matter if she gave you amounts in excess of the 12K. You will get the deduction for the medical expense, because now you are paying it with your money. I find this question to be the most misunderstood among clients, so I am glad you asked it. | |
| 16 December 2006 | |
| Thanks for the quick reply. So from my mother's perspective, could she gift $12K to my spouse and $12K to me in 2006 without having to pay taxes on the gifts?
Also, do these gifts affect my mother's AGI? Let's say she gave each of us $12K in 2006. On her 2006 tax return, does this translate to a $24K reduction in her AGI? If not, how does she categorize this gift on her tax return? With much gratitude, gtowings | |
Death&Taxes (talk|edits) said: | 16 December 2006 |
| Yes, she can give a second gift to your spouse. There is no tax deduction for gifts. The 12K or 24K will not appear on her 1040 or your 1040. I will let people whose opinions I value tell you whether or not she should file Form 709, the Gift Tax return. | |
| 16 December 2006 | |
| No gift taxes are paid until over $1,000,000 is given away during her lifetime. | |
| 17 December 2006 | |
| But if she gives more than $12,000 to any donee, she will use up some of her unified estate and gift tax credit and must file a gift tax return to report that. No tax, though, until the unified credit is all used up. | |
| 17 December 2006 | |
| No, just that portion of the unified credit that would equal the estate tax on $1 million. | |
| December 17, 2006 | |
| If you are a Michigan resident for six months or more and file a MI-1040CR for a homestead property tax credit, gifts must be included in household income. The property tax credit will then be reduced. | |
| 11 April 2007 | |
| My dad gifted us (my brother, sister, myself), 126 shares of freescale FSLB which sold the following month. The shares were a dividend from motorola's divesting and opened at $13 a share. When he transferred to us, they were worth $39.75 and sold at $40 per share. What is the cost basis for us, 13 or 39.75? | |
| 11 April 2007 | |
| your basis in those shares is whatever basis your dad had in them...you will have to know how the distribution of the FSLB shares was treated for tax purposes...see the various company websites for information on how to treat the distribution for your dad's tax purposes...once you know your dad's basis, you know yours. | |
TheTinCook (talk|edits) said: | 11 April 2007 |
| Nope, the basis of the gift is the FMV just before the transfer plus any gift tax paid. If the FMV is more then or egual to the donor's basis, the you figure gain as normal. The stepped up basis is your friend! See pg 8 of Pub 551 Basis of Assets | |
TheTinCook (talk|edits) said: | 11 April 2007 |
| Ignore, my last post, I was wrong, Glmpllc is correct. It was in pub 550. | |
| 31 May 2007 | |
| My spouse and eight of her siblings received a gift from a relative of $1,000,000.00 each. What type of taxes can they anticipate paying and what general types of investments can help defer these taxes--Jslaw206 12:30, 31 May 2007 (CDT) | |
| 31 May 2007 | |
| JS, with this size of gift you probably want quality individual advice, not generic free internet advice. Do you have a tax and investment professional you are already working with? | |
| 31 May 2007 | |
| Agree with the no tax on the gift received , but you definitely need some professional advice as you can expect your investment income on the 1,000,000 to increase your tax liability.
You need to find someone in your own state who can help advise on the best investments to lower state taxes (if any) - each state is different. A million dollars as a gift - nice - I'm definitely going to have to be nicer to my family members :) | |
| 31 May 2007 | |
| Actually if tax liability cannot be collected from donor the IRS will go after donee. If donor was a non-resident alien there are filing requirements. | |
Michaelstar (talk|edits) said: | 31 May 2007 |
| On 9 gifts @ $1m each - even if the donor is a resident - there is a Form 709 filing requirement. That is where the tax liability will arise that Dennis I believe is talking about. | |
| 31 May 2007 | |
| The 709 is the resposibility of the giver, not the receiver of the gift.
If there is a gift $12,000 or less/ person in a calendar year, no 709 is required. | |
Michaelstar (talk|edits) said: | 31 May 2007 |
| donor = one who gives
donee = one who receives | |
| 31 May 2007 | |
| Yes, but how many clients tell you to forget the 709 and they don't file it on their own?
That is Dennis' point, if the donor doesn't pay the gift tax, then the liability can be collected from the donee MANY years later (what is the statute of limitations for an unfiled gift tax return?). | |
Michaelstar (talk|edits) said: | 1 June 2007 |
| Yes.... Kevin - if one reads between the lines in what I said - the donee should probably follow up with the donor to make sure the donor in fact filed the 709 timely which is the donor's requirement - and not stick their little heads in the sand and ignore the question or - yes - as Dennis points out - and you have reiterated - the tax will become the responsibility (and oh - by the way - maybe some related penalties and interest) of the donee. | |
Michaelstar (talk|edits) said: | 1 June 2007 |
| So now lets assume for discussion purposes that someone who has accumulated wealth of this magnitude to be able to give relatives $9 million at one time has most likely the smartss to hire quality advisers. Well, lets hope so anyway ....... and will file their 709 in a timely manner.
At the highest tax rate - the gift tax on $1 million is $460,000 (or 46% - if I am wrong - Dennis please correct this). Total gift tax on $9 million = $4,140,000 which is another sizable sum. Here is the kicker. Good tax planning means great tax savings to the estate. We also need to assume (Dennis - this is where you come in if I am wrong) that the donor lives beyond the three years after the date of the gitfs. We then have a tax savings to the overall estate of $1,904,400 because the gift tax of $4,140,000 has been removed from the estate and is not there to be taxed at the 46% upon death. So really the nice relative actually will save almost $2 million by great tax planning and doing the correct thing. Filing the 709 Form timely and paying the tax as well. I love it when a plan comes together........ | |
| 1 June 2007 | |
| Michael, we have also removed the future appreciation of those assets out of the estate, as well as the income they would generate.
The $1 million per recipient might not have been cash - it might have been land or other real estate, a minority interest in a business, marketable securities, etc. | |
| 1 June 2007 | |
| The donor might be a foreigner! No tax . No problem. Until the $1,000,000 starts making money. | |
| 1 June 2007 | |
| Tim told me once that TA runs on GMT + 3 or some odd thing like that. Like there is a ship somewhere between London and New York with Tim and his computer floating about, hiding from fast elephants and the like. | |
| 1 June 2007 | |
| I think we are down to 45% and the Sec. 2035(b) hedge is a tough sell when 2010 is three years out. | |
Michaelstar (talk|edits) said: | 1 June 2007 |
| Kevin - the original post to me implied cash but it could have certainly been something else. Anyway, to save currently 46% in taxes is a great idea in my mind. I am not from the school that buys into the future appreciation the asset might bring to the estate on the tax saved in my example because one would need to make so much more to just break even in cases like this when the estates are so large (under current law of course).
Maybe you (Kevin or anyone else) can present for the class an example and a time line where it works to not make the gift of $9m / pay the gift tax as I presented, keep it in the estate and..... - would certainly be interesting concept to consider and I am all ears as the student. DZ - I guess for discussion purposes - we need to believe it is a citizen of the grand ole USA subject to our tax laws - otherwise the topic can get complicated in my mind and really not relate to the majority. Dennis - to assume that one is going to plan their death in 2010 is a tough one to bank on - but a very valid point (as we all hear in all of the estate CPE classes we have been to recently) - they live to 2011 and we make the three years. I used the 2006 rates in my example but I do appreciate (as always) your wisdom and the insite you always bring to the table. | |
| 1 June 2007 | |
| The savings is not the tax rate. It is the tax rate on the tax, so you are talking a net of a little over 20% Does it pay? Does removing future appreciation matter? The gift rates to be cash because an FLP is a better deal for anything else. The reason is generally "I want them to have it now" not tax savings. I've only seen one example of this. Two kids, so no imediate tax. One got the 600K the other got sole benefiary of a grantor trust and there was a tax adjustment clause in the will. At death (nine years later) the trust was worth $1.6 and the kid that got his early had about $400K left. | |
Michaelstar (talk|edits) said: | 1 June 2007 |
| I figured out where you are getting your 20% from. Your saying the tax (that I computed as saved) of $1,904,000 is around 20% of the $9m - yes? If not, help me out as you are to rock star in this area I do look up to for guidance. I still look at it as the savings on the tax that would be paid that has been removed from the estate that will now not be taxed at to highest marginal rate. I think we are saying almost the same thing but just looking at it from a different side of the table but I am still very interested in your point of view - I am still learning and you have great wisdom and experience.
As for your example - I have seen where some of the kids (in a specific live case) have been given more than $2m each and all of it is already gone and they are looking for more! Some of the other kids (same case) have made it into $3m+ and just shake their heads when their other siblings are asking for more hand outs..... Certainly everything is a case by case deal but when an estate is say worth $100m, $300m - the govt is going to get a very large payoff in the end so to hand out $9m and save $2m is nothing more than a poke in the eye. | |
| 1 June 2007 | |
| The twenty percent or so is fixed. That is all there is ever going to be. Break even would be 55% of the time value of the 45% you are paying in advance. Example: On 1 mil. Pay $450,000 now. Saving 45% of 450K=202,500. Cost over three years if invested in stock appreciating at 6% ($1.45m becomes $1.725M, after tax $950K to heir.) Kid would have 80% of appreciation on $1m. At 6% you are about dead even after year seven and deeper in the hole every year after. Other investments and rates crunch differently. | |
| 1 June 2007 | |
| Or maybe fourteen years? On second thought the math seems a bit off. Risk is 55% of what the advance payment would have earned over the first three years. Benefit is tax rate differential on gift earnings/appreciation (estate vs individual), less 55% of the rate of return on the advance payment. | |
| 19 June 2007 | |
| I have a tax case that I need to solve. Someone saved someone’s life and got a lot ofpublicity. He is now receiving all kinds of rewards from all sorts of people. Does he have to pay taxes on the gifts??? They are mostlt bills of $10 and 20 in envelopes and some certificates. | |
