Question about gifting strategy

[phil1ben]

Giving a gift to a third party with the understanding that they will gift it to another for purposes of avoiding tax is not a gift to the third party. The gift must be of a "present interest" for the $15,000 exclusion to apply. A "present interest" is defined in Form 709 as: "A gift is considered a present interest if the donee has all immediate rights to the use, possession, and enjoyment of the property or income from the property." Your gift to the the third party will not satisfy this test.

If you get caught it will be deemed to be a constructive gift to the final recipient thereby not achieving your goal.........if you get caught.

[target2019]

Quote:

Originally Posted by target2019 We are gifting under the current limit (15K) for just one of us each year for the next 5 or 6 years. Could go 2X of course, but I've decided a slow roll on this makes sense in the situation here. My thinking is that having 15K per year really helps the kid make extra payments. If there's a job loss, then the gift helps to make the base payment. If you did 30K per year, then you could mention that you want her to use this amount to go towards the house in some way, and let her know it's her choice. After all it's a gift, right? Whatever you do, the source of down-payment money will have to be covered when she gets a mortgage. I wouldn't recommend gifting to brother or sister to then gift to your child.

Quote:

Originally Posted by DawgMan Curious, in terms of solving OP's tax exclusion concern, why would gifting through family not technically work? Yes, any down payment would have to be accounted for as a gift, but is there some "legal" reason it does not work as a solution??

Quote:

Originally Posted by 4legsgood Huh? The suggestion is for gifting amounts below reporting requirements.

I've quoted my entire post so readers can review my entire response and its context.

If you look at phil1ben's response, you can see what I was referring to. Why poke the IRS Bear, even if your chance for auditing is low? Can you say for certain that circumventing the rules in this case will have no future repercussions for yourself or your brother? Transactions don't come into their view just because. When an audit begins on someone, a string is pulled and many interesting things come to the surface. I have no interest in passing along $15,000 in the manner you are suggesting.

I would have a problem placing a relative in a corner by asking, "I'm gonna give you $15,000 and I'd like you to give this to my daughter for her real estate downpayment." I think for many of us alarms would go off, and we'd be questioning the idea.

Technically, anything will work. You put numbers on the tax form, or don't, and what you submit works. Until it doesn't.

[Sunset]

Quote:

Originally Posted by target2019 .... I would have a problem placing a relative in a corner by asking, "I'm gonna give you $15,000 and I'd like you to give this to my daughter for her real estate downpayment." I think for many of us alarms would go off, and we'd be questioning the idea. ....

I question if I could find a relative I would trust to pass on the money

[target2019]

Quote:

Originally Posted by Sunset I question if I could find a relative I would trust to pass on the money

As I clicked send on that post I had a similar thought. Once you gift the money with a stipulation to pass it on to your daughter, the individual could simply forget about the stipulation.

[audreyh1]

Quote:

Originally Posted by billerbeck My daughter will settle on her first home sometime in late January 2022. My wife and I would like to gift her $100K towards the purchase and at the same time have the least impact on gift tax exclusions. My thought right now is that my wife and I would each gift her $15K before the end of 2021 and we would each gift her another $35K in early 2022 (for a total of $100K). The reasoning is that the 2021 gifts would keep us at the gift reporting limit for 2021 (i.e., $15K each); the 2022 gifts would consume the 2022 allowed amount (i.e., $16K each) and leave $38K subject to gift tax reporting. Is there a more clever way to do this? Also, should my wife and I write separate checks? Or are single checks from a joint account OK? Thanks in advance.

It’s smart to split the gifts over the two years.

In reporting the gifts your wife and you will each report the gifts for 2022 (in 2023) on a form 709, and there is where you declare they are shared gifts. A single check from a joint account is just fine. Each of you would would be declaring half the $38K amount above the annual gift exemption as at applies against each of your exemptions individually.

[audreyh1]

Quote:

Originally Posted by billerbeck Thanks all for the good and interesting responses. I'm actually nowhere near the exclusion limit either. But I am envisioning a future where the money-grubbing pols in Washington lower the exclusion back down to where I could be affected.

Well the estate tax exemption will be cut in half anyway by 2026, and there is grumbling about reducing it even further.

So, no, you can count count on the estate tax exemption to remain as high as it is today.

[SecondCor521]

Another thing to think about for some people is that the gift and estate tax is a unified tax credit.

What this means approximately is that a person's estate might owe an estate tax if (a) the gifts during life that are above the annual $15K exclusion and reported on a gift tax return plus (b) the value of the person's estate at death (c) exceed the exclusion amount at the time of death.

So if you give $215K to your kid for a house down payment (could easily happen with a well off parent and a kid buying in SFO) and report a $200K gift on a gift tax return, then you die 15 years later with an estate of $6M and the exclusion amount then is $6.1M, then I believe your estate would owe taxes on $200K + $6M - $6.1M = $100K. Currently the top estate tax rate is 40% and the way the math works I think that applies to the first taxable dollar, so that would be a $40K estate tax bill due.

[euro]

Quote:

Originally Posted by Souschef I struggled with ways to avoid reporting a gift to my son so he and DIL could buy a house. I finally said, "The heck with it", and filed a form 709. I also had to send a gift letter to the lender. With the exclusion being $11.7 mil, the $235K is down in the noise.

I did the same with gifts to both my children. Just file the form - it's not a big deal.
I don't understand why so many people seem to twist themselves into a pretzel just to avoid filing this simple form (no taxes are due in all but the VERY most extreme cases). To the OP: just give the 100k to your daughter (best to do that ASAP, so that it can properly season in her account), file form 709 next April, and be done with it.

[GravitySucks]

I think OPs idea will work fine. I would not try to circumvent to rules as that's what usually seems to draw attention.

Also, if I'm lucky enough to have my estate fall into a taxed bracket I'm coming back to haunt any heir that complains about paying taxes due. Money wouldn't even be there without a functional government.

[Winemaker]

I have bought and sold real estate for shelter and as rental property for over 38 years. I have had to sign many documents to state that none of the money used was given to my wife and I before the purchase. I have had to also verify zillions of cash and check deposits (rent payments) into my checking accounts over the years, prior to qualifying for a mortgage.

My advice, let her buy the property own her own, then gift her after all the t's are crossed.