Life Time Gifting Question

[street]

With the life time gifting ~ 11 million does that gifting also include property, homes etc.? I just would like someone else's take on the regulations of the IRS 709 tax rules etc..

Okay, what I can see land or homes and any property is a legal gifting event. So, you must have to take an appraisal value then use that number against the life time limit (~11 million).

 

[wolf]

Yes. Any $ over yearly gift, you can apply the excess to your 11 million lifetime exception. Just be sure and fill out Form 709 , when you file your income tax return.

Keep in mind, you are gifting, your "basis", in the property to the recipient.

 

[street]

wolf thanks for your response. So, real property (land) I can gift is my understand of reading the IRS rules and your understanding of the rules also.

So, in gifting land it would be an appraisal value at the time of gifting, so there would be a number to add to the life time amount to gift? Can you or anyone else add an insight to my question.

Thanks

 

[Souschef]

There are two numbers to consider. The first is the appreciated value of the property. The second is the cost basis.
The appreciated value is what you would report on a 709 if it is over the $15K limit
If the donee sells the property, the CG would be the difference between the original cost basis and the sales price.

 

[street]

Souschef, thanks for that clarification. Very much appreciated.

Yes, the appreciated value would be > greater 15K and would need the 709 tax rules applied.

 

[donheff]

There are two numbers to consider. The first is the appreciated value of the property. The second is the cost basis.
The appreciated value is what you would report on a 709 if it is over the $15K limit
If the donee sells the property, the CG would be the difference between the original cost basis and the sales price.

I don't plan to do this but want to understand the principle. If I leave a house to someone when I die, they get it free of tax at the current market value. Do I understand this to say that gifting the same property to someone, they would get the basis amount tax free but would pay CGs on the appreciation from my basis if they ever sell? Does the 709 specify both figures? How would the donee figure out the original basis?

 

[RunningBum]

I don't plan to do this but want to understand the principle. If I leave a house to someone when I die, they get it free of tax at the current market value. Do I understand this to say that gifting the same property to someone, they would get the basis amount tax free but would pay CGs on the appreciation from my basis if they ever sell? Does the 709 specify both figures? How would the donee figure out the original basis?

Yes, this is correct. I haven't done this so I haven't looked at a 709 until just now but in 10 seconds of looking I do see something about basis in a schedule attached with the form. You could read the instructions to figure it out more if you are interested.

Presumably the donor knows the basis because they would have needed to pay tax on a sale if they had done that instead, unless the gain was safely under the primary real estate exemption amount. If the donee was never told what the original basis was, they could go through old real estate transfer records to find out what the donor paid. They wouldn't be able to add in improvements without records.

 

[Souschef]

+1 on what RB says. The only thing the IRS cares about is the present value of the gift, and that is the only figure to report on the 709.

 

[RunningBum]

+1 on what RB says. The only thing the IRS cares about is the present value of the gift, and that is the only figure to report on the 709.

Um, that's not actually what I said. From a very quick look at form 709 and schedules, it looks like basis is also reported, probably as a reminder to the donor that they will have to calculate capital gain from this.

IMO people should look up information themselves rather than rely on information given here. Rather than ask what's on form 709, go look at form 709 and see for yourself, then ask if you still don't understand.

I've only gifted VG mutual fund shares up to the yearly exemption amount, to my son who also has a Vanguard acct. VG transfers the cost basis to him, and correctly reports it on a 1099 when he sells it. I doubt I'll ever gift real estate.

 

[Souschef]

RB, I apologize. Since I was giving cash, there was no difference in basis.