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Columns: Tax Talk
George Saenz, CPA   Expert: George Saenz, CPA
Tax Talk
Will reader pay taxes on gift?
Tax Talk

Who pays the gift tax?

Dear Tax Talk,
Please help! I am getting different answers on this question, both from a lawyer and a financial adviser. My in-laws want to give my wife and me $60,000 for a down payment to a new house. We are looking at signing in the next few weeks. What are the tax implications?

I understand that my mother-in-law can give each of us $12,000 and the same with my father-in-law. That comes to a total of $48,000 tax free. If they give us $60,000, or if my mother-in-law writes one check for $60,000, what happens? Who is taxed and how much? Thanks for your fast response!
-- Eric

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Dear Eric,
A gift tax is imposed on the transfer of money or other property by gift. The federal gift tax is integrated with the estate tax in a unified tax rate schedule and tax credit. The result is a single tax on transfers during life and at death (though for the next few years transfers occurring at death have a larger exemption from tax).

Generally, for gift tax purposes, the first $12,000 of gifts to each donee is not included in the total amount of gifts made during the year. A married donor can elect to split the gift with his or her spouse so as to stay under the $12,000 threshold even though the funds come out of one spouse's separate bank account. If you deposit the gift into a joint account with your spouse, then you are each treated as receiving half. Hence, your mother-in-law can transfer to your joint account up to $48,000 without creating a taxable gift.

Because you need $60,000, you are $12,000 over the limit. Even though she will gift more than the limit, there is a lifetime exclusion on up to $1 million in taxable gifts so no actual gift tax is paid. Your mother-in-law would be required to file Form 709 by the due date of her Form 1040 to report the gift-splitting election with her husband and the taxable $12,000 gift to each of you from each of them.

If she wants to avoid filing Form 709, ask your mother-in-law to gift the $48,000 out of a joint account with her husband to a joint account of yours. Ask her to lend you the remaining $12,000 until next year. Pay it back to her at that time, and hope she still wants to gift it to you.

Bankrate.com's corrections policy -- Posted: May 11, 2007
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