- advertisement -

-- Posted: July 20, 2000

Dorothy Rosen -- The Dollar Diva Ask the Dollar Diva

How do gift taxes work?

Dear Dollar Diva,
My grandfather recently died, and my mother is going to give me $50,000. She says I can have $10,000 a year and pay no tax, or the entire $50,000 and pay a lot of tax.

We really could use the whole amount. We'd invest quite a bit of it, but could use more than $10,000 for home repairs. What is the best thing to do? I don't mind paying some taxes, but not 20 percent or 30 percent or more.

-- Mark


The person giving the gift pays the gift tax, not the person receiving it. It sounds like your grandfather left money to your mother, and out of the goodness of her heart she is going to share some of it with you. If she gives you $10,000 a year, there is no tax consequence to her. But she may have to pay gift tax on anything above that, and she may want to pass the tax on to you. The gift tax is steep, ranging from 37 percent to 55 percent, so you want to avoid it.

- advertisement -

You say "we," so the Diva will assume you have a wife. Your mother can give $10,000 to you and $10,000 to your wife now, and repeat the performance Jan. 1, 2001. That's $40,000 transferred to your family tax-free over a six-month period. Way to go. Better yet, if your mother has a husband, between them they can give $20,000 a year to you and your wife, so $40,000 can be transferred tax-free now, with the balance going to you the first of the year.

However much you receive each year, you should show your gratitude for the generous gift by making a contribution to charity. You should also put $2,000 apiece in an IRA, each year, if you're eligible, and build up a savings fund for emergencies. After that you can think about fixing up your house and investing.

top of page
See Also
Financial advice glossary
More Dollar Diva columns
Print  
 

30 yr fixed mtg 3.96%
48 month new car loan 3.23%
1 yr CD 0.72%
Alerts


Mortgage calculator
See your FICO Score Range -- Free
How much money can you save in your 401(k) plan?
Which is better -- a rebate or special dealer financing?
VIEW MORE CALCULATORS

BASICS SERIES
Begin with personal finance fundamentals:
Auto Loans
Checking
Credit Cards
Debt Consolidation
Insurance
Investing
Home Equity
Mortgages
Student Loans
Taxes
Retirement

MORE ON BANKRATE
Ask the experts  
Frugal $ense contest  
Quizzes  
Form Letters


- advertisement -
 
- advertisement -