Gifting cash and the taxman

[Tailgate]

I could not find via search any discussion of how to gift cash to a relative without a tax bite. I understand that 20k is max.

My DM needs some assistance to pay living expenses and I'm here to help...but her only account to send to is a joint account that I'm on. I handle all her finances.

Is there a way I can gift her the cash, pay no tax and be able to earmark it for her use to pay rent, etc. I could also open another account for her exclusively, if needed. Her bills are paid automatically.

I'm guessing that there is no tax benefit to me on my taxes.. we both are simply avoiding tax via the gifting.

Right or wrong? Any advice as to when to gift, how to show it..etc... thanks!

 

[youbet]

I understand that 20k is max.

$20k is the max what?


How much do you want to gift your mother during the year?

 

[RunningBum]

A simple google search would show that $15K is the max before you have to start worrying about gift taxes, not $20K, so it's pretty clear you haven't one any research on your own on this. If you are married, you and your wife can give your mother $30K. If your mother were married, you could make it $60K.

The only way you'd get a tax benefit would be to make your mother a dependent. I don't know what all that entails but it doesn't sound like you're going there.

You don't have to track it at all as long as you keep it under the limit. If you go over the limit, google for what form you track it with. It would eventually come out of your estate somehow, not income taxes. I don't know how that works so you'd have to look it up but I find it easiest to just avoid it.

Why do you need to earmark it somehow? Seems you are trying to make it complicated. Especially since you are joint on her account, you can simply deposit what money you want, up to $15K (or 30 or 60) into her account and pay her bills with it. There's no tax involved.

 

[mountainsoft]

I could not find via search any discussion of how to gift cash to a relative without a tax bite. I understand that 20k is max.

You can gift up to $15,000 per person without paying taxes on it or having to claim it on your tax return. It is excluded from taxes meaning you can't deduct it either.

https://smartasset.com/retirement/gift-tax-limits

It looks like the gift exclusion remains at 15K for 2019 at well.

https://www.irs.gov/businesses/smal...oyed/frequently-asked-questions-on-gift-taxes

 

[Tailgate]

$20k is the max what?


I've always heard that you can gift 20k tax free. I haven't decided if the amount is all at once or several times during the year. She's not in immediate need. Planning for the future to give her additional years in independent living. Just wanting to make sure I plan correctly and by the book.

 

[bingybear]

If she has low tax rate you could gift appreciated assets and have her sell them at a lower tax rate than you might get. But still 15k without out filling out a gift tax return. You can give more more than the 15k /pp if you fill out a gift tax return which would start by reducing your unified exclusion.

 

[cathy63]

I've always heard that you can gift 20k tax free. I haven't decided if the amount is all at once or several times during the year. She's not in immediate need. Planning for the future to give her additional years in independent living. Just wanting to make sure I plan correctly and by the book.

What you've always heard is wrong. The current amount is $15K and it changes from year to year, so you have to look it up every year.

If you want to give your Mother more than $15K, you can do that. The easiest way is to do as RunningBum mentioned and include your spouse and your mother's spouse as giver and recipient to get to a max of $60K. If that's not possible, then you just have to file form 709 with the IRS to report gift amounts over $15K. You don't have to pay any taxes, and neither does your mother, you just have to report the amount given.

When you die, all the "excess" amounts you gave away will be added to your estate. If the total of gifts plus estate is greater than $11.4M, then your estate will have to pay tax.

 

[Bestwifeever]

https://www.irs.com/articles/7-things-you-should-know-about-gift-tax This IRS article says $14k from one person—perhaps out of date but I don’t think so. It’s very easy to read imo. Notice you can directly pay her medical expenses (you pay the doctor, vs giving her the money to pay the doc) and it won’t count as part of a gift.

This source was very easy to find btw. You might find more helpful information yourself (and could share it here).

 

[gwraigty]

https://www.irs.com/articles/7-things-you-should-know-about-gift-tax This IRS article says $14k from one person—perhaps out of date but I don’t think so. It’s very easy to read imo. Notice you can directly pay her medical expenses (you pay the doctor, vs giving her the money to pay the doc) and it won’t count as part of a gift.

This source was very easy to find btw. You might find more helpful information yourself (and could share it here).

Yes, it is out of date. The 2018 amount, as others have already said, is $15,000 per person.

An up-to-date source (go to page 20):

https://www.irs.gov/pub/irs-drop/rp-17-58.pdf

".37 Annual Exclusion for Gifts.
(1) For calendar year 2018, the first $15,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 made during that year"

Just be sure that if you go the route of paying expenses directly, that you don't sign anything that makes you the guarantor.

 

[mountainsoft]

I've always heard that you can gift 20k tax free. I haven't decided if the amount is all at once or several times during the year. She's not in immediate need. Planning for the future to give her additional years in independent living. Just wanting to make sure I plan correctly and by the book.

The gift tax exclusion is currently 15K PER PERSON, PER YEAR.

In other words, you can gift your mom 15K this year (all at once or spread over the year, doesn't matter), then gift another 15K next year, and so on.

If you're married, your wife could also gift 15K to your mom. Your mom would end up with 30K for the year, but you and your wife would each be within the 15K gift limit.

 

[Lakewood90712]

IIRC, you can gift tax free full amount against your lifetime inheritance tax exemption of when you die. This was from my CPA last year on tax law for 2017 . I don't recall the irs information title on this.

Pease check with your tax advisor.

 

[youbet]

Is there a way I can gift her the cash, pay no tax and be able to earmark it for her use to pay rent, etc.

You'll be relieved to hear that as long as you limit your help to $15k/yr, you're making this way, way more complicated than it is. I just went through this. DW and I "helped" MIL financially for about a decade. I thought it would be complicated, it would be hard to control how the gifted money is spent and/or DW and I could somehow benefit on our taxes. It all turned out to be simple, easy to control and no, there was no money to be saved tax-wise for us.

In our case, when we noted MIL was starting to skimp at the grocery store, not be able to purchase little gifts for the great grand kids at their b'days, Xmas, etc., we found unobtrusive ways to step in. In our case we informed her she'd no longer be getting HOA fee bills from her condo association nor would she be paying property tax. We just stepped in and paid those things. After that, she was fine for several years before going into a NH.

In your case, where you're already paying your mother's bills for her out of a joint account, just add money to the account as needed (up to $15k) and go on paying the bills. Easy. If you have a concern that your mom might spend money out of the account inappropriately, just pay her bills out of your own account (without adding money to the joint account).

I'm guessing that there is no tax benefit to me on my taxes.. we both are simply avoiding tax via the gifting.

You might find something but we didn't. You could look into gifting appreciated assets. Or paying more than 50% of her total living expenses and having her become a dependent. Or ?? We found this all too complicated vs the modest expected benefits. So we just spent some money on her, kept it under $15k (yes, could have been $30k since we are a married couple) and focused more on being there for her during these years and less on the financial nuts and bolts of gifting.

Good job on being there for your mom.

 

[pb4uski]

What you've always heard is wrong. The current amount is $15K and it changes from year to year, so you have to look it up every year.

If you want to give your Mother more than $15K, you can do that. The easiest way is to do as RunningBum mentioned and include your spouse and your mother's spouse as giver and recipient to get to a max of $60K. If that's not possible, then you just have to file form 709 with the IRS to report gift amounts over $15K. You don't have to pay any taxes, and neither does your mother, you just have to report the amount given.

When you die, all the "excess" amounts you gave away will be added to your estate. If the total of gifts plus estate is greater than $11.4M, then your estate will have to pay tax.

^^^ spot on!

 

[Car-Guy]

When I checked into a few years ago I understood the gift limit was 14k "per person" to "any other person" per calendar year. This year it has been bumped to 15k as I understand it. The DW and I each write checks for 14k (now 15k) to our DD each year. That's trackable for tax purposes even though it's not reported by anyone on their tax returns.

 

[loganbailey]

The IRS lets you exempt over $5 million in gifts over your lifetime without having to pay gift tax. I'm going to go out on a limb and say, you're not going to have to pay taxes.

Unless your estate will is valued over 5 Million or 11 Million for a married couple, you probably won't be gifting nearly enough to ever have to pay taxes.

 

[2177V]

$15K is the max

I talked to a CPA and the CPA's advice is consistent with Cathy63. The max gift is $15K from one individual to another. However a couple to couple is $60K because there are 4 gifts of $15K each involved.

My daughter and her husband needed to buy our $500K house but they were $200K short to pay 100% cash. To solve this problem, we decided to give them a $140K loan after giving them $60K for the first year. They then pay us a monthly payment but next year we can forgive the loan's remaining balance by $60K at the start of the second year. The third year, another $60K reduction until the loan disappear. The accummulative gifts will not come close to the $1M+ maximum allowable.

I do have to charge the Applicable Federal Rate which is 2.9% which is much lower than the banks and I have to report this interest as income on my tax return but I can handle that. The benefit is that they do not have to go to a bank for a mortgage and they have a house free and clear.

I got this tip of a yearly $60K gifts from my CPA which I paid a CPA fee of less than $100. I consult my CPA on most of my financial decisions involving taxes. Do not make major decisions based on this forum. Use the forums so you can ask more intelligent questions and then verify it for sure with a CPA.

What I am trying to say is....use this information at your own risk. You can then reduce your tax risk by talking to a CPA. In my opinion, the CPA fee of less than $100 is worth it.

 

[RunningBum]

I talked to a CPA and the CPA's advice is consistent with Cathy63. The max gift is $15K from one individual to another. However a couple to couple is $60K because there are 4 gifts of $15K each involved.

My daughter and her husband needed to buy our $500K house but they were $200K short to pay 100% cash. To solve this problem, we decided to give them a $140K loan after giving them $60K for the first year. They then pay us a monthly payment but next year we can forgive the loan's remaining balance by $60K at the start of the second year. The third year, another $60K reduction until the loan disappear. The accummulative gifts will not come close to the $1M+ maximum allowable.

I do have to charge the Applicable Federal Rate which is 2.9% which is much lower than the banks and I have to report this interest as income on my tax return but I can handle that. The benefit is that they do not have to go to a bank for a mortgage and they have a house free and clear.

I got this tip of a yearly $60K gifts from my CPA which I paid a CPA fee of less than $100. I consult my CPA on most of my financial decisions involving taxes. Do not make major decisions based on this forum. Use the forums so you can ask more intelligent questions and then verify it for sure with a CPA.

What I am trying to say is....use this information at your own risk. You can then reduce your tax risk by talking to a CPA. In my opinion, the CPA fee of less than $100 is worth it.

I don't follow what you are saying with the bolded part. Gifting up to $15K/person doesn't count at all toward any accumulation of a lifetime maximum. And the estate maximum is now $5.6M, which I guess technically is 1+ million but that's a very big +. I hope this isn't information you've gotten from your CPA.

 

[2177V]

Runningbum

You are right, that sentence can be mis-interpreted. I should have stated that "The accummulative gifts have no impact on my Lifetime Estate and Gift Tax". It is human nature to remember important issues but issues that does not affect you directly tend to fade away. The Lifetime Estate and Gift tax exemption is so large that it does not impact me.

My CPA stated that I should document the paperwork in the event of an audit. This is because the IRS may question how my 20 something daughter and her husband owns a house that is free and clear when she is still going to college.

If the paperwork demonstrates that the money that my daughter acquired are "legal family loans" in the state of California, then the family should pass the audit. MY CPA was also smart enough to know her limits because she stated that I should consult a tax attorney on some of my questions. In any case, the CPA's advice that I can spread out the yearly gift tax exemption over several years via multi-year family loan was worth the $100.00 fee. Readers got this information for free but you should consult your own CPA because I cannot accept any liabilities because I live in California and your state may have different tax rules.

 

[ERD50]

....

I got this tip of a yearly $60K gifts from my CPA which I paid a CPA fee of less than $100. I consult my CPA on most of my financial decisions involving taxes. Do not make major decisions based on this forum. Use the forums so you can ask more intelligent questions and then verify it for sure with a CPA.

What I am trying to say is....use this information at your own risk. You can then reduce your tax risk by talking to a CPA. In my opinion, the CPA fee of less than $100 is worth it.

.... In any case, the CPA's advice that I can spread out the yearly gift tax exemption over several years via multi-year family loan was worth the $100.00 fee.....

Not really following you. The info in this thread included links to the IRS site, and it is pretty easy to understand. $15K per person-person per year, so 60K from one couple to another couple per year. Is not taxed, does not affect Estate Taxes. That's about it.

If you could not follow that, then I suppose the $100 CPA fee was worth it to you. But I think most people would follow it easily, with maybe a little guidance from the community here.

But of course, if you don't understand, seek professional tax help.

-ERD50

 

[gerntz]

The lifetime total of your estate value at death & and gifting exceeding $15K per year, per person, tax-free, is $11 Million as of 2018. Net, if your estate will be under say $5M, you can give your Mom a $1M today and there are no taxes ever. You do need to fill out a tax form for gifts over $15K per year per person, but there is no tax, just a deduction from your $11M estate limit that is tax-free. People seem to never understand this.

 

[gerntz]

The DW and I each write checks for 14k (now 15k) to our DD each year. That's trackable for tax purposes even though it's not reported by anyone on their tax returns.

What tax purpose? There are no taxes involved to my knowledge.

Also, this assumes you never give any smaller gifts to DD thru the year that pushes the total over $15K.

 

[Souschef]

Runningbum


My CPA stated that I should document the paperwork in the event of an audit. This is because the IRS may question how my 20 something daughter and her husband owns a house that is free and clear when she is still going to college.
.

You give the IRS too much credit. How are they going to know if the house ifs free and clear? If their property tax, etc is less than the standard deduction, they will not know that they even have a house.

 

[ERD50]

You give the IRS too much credit. How are they going to know if the house ifs free and clear? If their property tax, etc is less than the standard deduction, they will not know that they even have a house.

I also don't know how/why the IRS would be triggered, but I would still document it. It would only take a minute, and you never know.

-ERD50

 

[2177V]

Granted it is not likely that the IRS will not know about my daughter has a house free and clear. However, I can't take the risk. Without documentation for the IRS, you might as well turn around, pull down your pants and bend over....and hope nothing will happen. I always assumed that the IRS may know somehow and I always assumed that I will be audited. Based on these assumptions, I feel more secure.

The $100 CPA fee is an hourly rate which also includes having the CPA review the loan documentation is correct, that the interest rate is valid, and many other questions that I had to fit in one hour. If you see a CPA just for one question then I agree $100 may not be worth it to some people.

However, my ultimate goal was to make sure my daughter will never have to pay a mortgage payment in her life and I had to make sure that I am doing it right. She may end up being a FIRE since I will demand that she invest her money that she will be saving instead of spending it. I will let the readers decide if my $100 CPA fee was worth it or not.

 

[Sunset]

....

However, my ultimate goal was to make sure my daughter will never have to pay a mortgage payment in her life and I had to make sure that I am doing it right. She may end up being a FIRE since I will demand that she invest her money that she will be saving instead of spending it.....

Good luck with that part. Seriously I hope it works the way you think, but if not come back and make a new thread about how you gave her a house and now she just blows money on stuff rather than investing it.

If you can afford to give her a house, then she knows her inheritance will be BIG, so no need to save.