Gifting to children

[Car-Guy]

Questions:

1. Is my understanding correct that "in kind" gifts to kids would count towards the $15K annual gift tax exemption amount?
2. At what level do you or people you know keep track of this sort of stuff? Do you only gift $14,980 plus a hamburger? $12,000 plus a cruise?

1- Yes, that's my understanding too.... ex. I once gave a car to my DD... I estimated the value using KBB and added that to the cash I gave her for the year.
2- I don't track things like hamburgers, but I do track things like Christmas and Birthday gifts since those are nice chucks of change. In the end I file form 709 anyway since I'm gifting over 15k but I round it off (up) to the nearest 1k.

 

[Golden sunsets]

If you are married you can actually gift her $30,000 each year. $15k from you and $15K from the Mrs.

Right. We could do 30k and 20k, or 25k and 25k, to accomplish our gifting.

 

[rodi]

Still wrapping my head around the op's hypothetical of in kind gifts.

If a child is a dependent I assume you don't have to track misc stuff you cover. But I have a kid who is a part time student, works 30 hrs a week, and claims himself. We help him out by covering his health insurance premiums (low cost because he's low income). We also still have him on our car insurance because he is using a beater truck we own. It totals under $15k a year so under the limit... But would this stuff count?

 

[PatrickA5]

Strangely, the tax code explicitly defines 529 contributions as gifts to the named beneficiary, even if they are made by the account's owner.

For 529s the law also provides an option to spread the gift over up to 5 years, but you still have to file a gift tax return and check the appropriate box to elect that treatment.

Exactly what I did. Reported the $100K on gift tax form and then deducted $20K off my states taxes over 5 years.

 

[Fielding]

Medical donations are exempt from gift tax treatment

We help him out by covering his health insurance premiums (low cost because he's low income).... But would this stuff count?

Medical expenses, including health insurance, are exempt from gift tax treatment, just like tuition is:

https://www.stokeslaw.com/news-and-...nt-of-qualifying-medical-and-tuition-expenses

My father covers my health care bills. He does this because he assumes he will hit the lifetime estate tax exemption and have to pay estate tax. Therefore he is looking for any tax-favorable way to give my brother and I money or assets while he is still alive.

As the page above details, the "donor" needs to pay relevant bills directly - no reimbursing.

 

[SecondCor521]

For those interested in this topic, I came across this Bogleheads thread which discusses it a bit:

https://www.bogleheads.org/forum/viewtopic.php?f=2&t=345728

 

[Rambler]

When we helped our DD&DSIL with a down payment on a house, we gave each of them $12,500 from each of us, so $50k, in December. Then we did it again in January, so we could give them a total of $100k for their house.

OK, that’s of course something that is large and pretty visible to the IRS, should they take a peek. Still, all within the law.

But realistically, what about the hamburger? What if they fall on hard times, and you help them out by buying groceries? According to the law, I’m sure the government wants to see every penny, down to the last 5 fries and two onion rings I gave my daughter from my lunch. But that is just ridiculous, as is reporting helping them make a months rent or a week’s groceries if they’re experiencing tough times.

Finally, even though “currently”, in the events of our demise, there wouldn’t be any federal tax consequences on our estate. But what about next year, or the year after that? Proposals abound to reduce the estate exemption to a million or two, or five. Then, many of us here would be impacted. We’ve already begun contingency planning for such a change to the estate tax laws….by helping the kids pay down mortgages, car loans, getting new cars, etc, as needed, but by remaining within our annual exemption. And if they ever need a pack of strawberries when I’m at the market, I have no plans to add up every 88 cents I spend on things my kids eat.

 

[SecondCor521]

Finally, even though “currently”, in the events of our demise, there wouldn’t be any federal tax consequences on our estate. But what about next year, or the year after that? Proposals abound to reduce the estate exemption to a million or two, or five. Then, many of us here would be impacted. We’ve already begun contingency planning for such a change to the estate tax laws....

This is actually the root motivation for my original question.

I'm 52 and my Dad is 85. Depending on a number of variables, I may or may not have an estate tax problem. I'm trying to figure out if I should address it via disclaimer or BTD and aggressive gifting. I'm leaning towards the latter but am still mulling it over. I think it is likely but not certain that there is enough gifting capacity to manage my (possible) (first world) problem.

 

[Time2]

Medical expenses, including health insurance, are exempt from gift tax treatment, just like tuition is:

https://www.stokeslaw.com/news-and-...nt-of-qualifying-medical-and-tuition-expenses

My father covers my health care bills. He does this because he assumes he will hit the lifetime estate tax exemption and have to pay estate tax. Therefore he is looking for any tax-favorable way to give my brother and I money or assets while he is still alive.

As the page above details, the "donor" needs to pay relevant bills directly - no reimbursing.

OK, so does that means I could give more than the $15K towards tuition and not have to file a 709? Oh, I see I need to pay it direct! We couldn't take the tax credits and deductions, but they could so we gifted the money.

Wife and I have been giving $15k each to my daughter and also giving $15k each to my to her husband to pay for tuition, but some years she has had to buy equipment to practice with and we paid for that directly. So it seems our $15k checks were gifts under the gift tax treatment and the tools we bought were exempt from the gift tax treatment?
We also pay her health insurance, that is also exempt from the gift tax treatment.
Now I'll read the URL posted.
EDIT

Reading sucks! " payments for costs of supplies, books, dormitory fees or board do not qualify for the exclusion."

 

[EdL3]

This sounds like an opportunity to employ don’t ask, don’t tell. Family vacations & dinners with our hard earned already taxed money will not (should not) be taxed a 2nd time unless I tell. My lips are sealed.

 

[SecondCor521]

OK, so does that means I could give more than the $15K towards tuition and not have to file a 709? Oh, I see I need to pay it direct! We couldn't take the tax credits and deductions, but they could so we gifted the money.

There's no need to gift them the money in that way.

If you pay the school directly for tuition, your child can still claim the education tax credits if they are not your dependent and assuming they otherwise qualify for the credits. From the instructions for Form 8863:

"Expenses paid by a third party. Qualified education
expenses paid on behalf of the student by someone other than
the student (such as a relative) are treated as paid by the
student. However, qualified education expenses paid (or treated
as paid) by a student who is claimed as a dependent on your tax
return are treated as paid by you."

-- page 2, https://www.irs.gov/pub/irs-pdf/i8863.pdf

Your payment to the school would be exempt from gift tax if paid directly and used for tuition.

 

[Time2]

There's no need to gift them the money in that way.

If you pay the school directly for tuition, your child can still claim the education tax credits if they are not your dependent and assuming they otherwise qualify for the credits. From the instructions for Form 8863:

"Expenses paid by a third party. Qualified education
expenses paid on behalf of the student by someone other than
the student (such as a relative) are treated as paid by the
student. However, qualified education expenses paid (or treated
as paid) by a student who is claimed as a dependent on your tax
return are treated as paid by you."

-- page 2, https://www.irs.gov/pub/irs-pdf/i8863.pdf

Your payment to the school would be exempt from gift tax if paid directly and used for tuition.

Thanks, always more to learn, much of it to late.

The 8th and last tuition check is due in Dec.
So, maybe, I'll pay it direct, then still gift them $xxk. It would help them, as they're rehabbing a house, and she totaled out her car about two weeks ago and they didn't get enough insurance money to cover the money they put down on the car.

 

[SecondCor521]

Thanks, always more to learn, much of it to late.

The 8th and last tuition check is due in Dec.
So, maybe, I'll pay it direct, then still gift them $xxk. It would help them, as they're rehabbing a house, and she totaled out her car about two weeks ago and they didn't get enough insurance money to cover the money they put down on the car.

Congratulations on the last tuition check! It's a nice feeling, isn't it? (I have one done, two sophomores ETA December 2024.)

I have new realizations all the time. I have been giving my kids cash at Christmas, which ultimately comes from my taxable account. It'd be more efficient for me to give them stock and have them sell.

 

[curtc]

Just a comment...one could give daughter $15,000 from mom and another $15,000 from dad...am I correct?

Also I will investigate but can she take money that she has put in from her Roth for a house deposit....or is that on the slate to change if it is the case..

 

[Time2]

Just a comment...one could give daughter $15,000 from mom and another $15,000 from dad...am I correct?

That's how I understand it, that how we gift $60k, $15k each from mom and dad to daughter and $15k each to son in law.


Also I will investigate but can she take money that she has put in from her Roth for a house deposit....or is that on the slate to change if it is the case..[/QUOTE]


Look into it, I think there is a provision for first time home buyers.

 

[rembrandt]

When I was in my twenties, my father gave me $5000 because he felt guilty for beating the hell out of me as a child. I wonder if he paid gift tax?