Gifting money - lifetime gift tax exemption question

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MickMal
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Gifting money - lifetime gift tax exemption question

Post by MickMal »

May I please ask fellow Bogleheads a question regarding the lifetime gift tax exemption? If a parent wishes to distribute cash (more than $15,000 per person) to their family within their lifetime, they can do so tax free provided the total amount is less than $11.70 million and an IRS form 709 is filed. The individual receiving the gift does not need to file any forms with the IRS. Do I have that right? I thank you in advance for the input.
Lee_WSP
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Re: Gifting money - lifetime gift tax exemption question

Post by Lee_WSP »

MickMal wrote: Mon May 17, 2021 5:11 pm May I please ask fellow Bogleheads a question regarding the lifetime gift tax exemption? If a parent wishes to distribute cash (more than $15,000 per person) to their family within their lifetime, they can do so tax free provided the total amount is less than $11.70 million and an IRS form 709 is filed. The individual receiving the gift does not need to file any forms with the IRS. Do I have that right? I thank you in advance for the input.
The gift tax exemption is the same as the estate tax exemption, which is why it's called a lifetime exemption. So the inter vivos gift above 15k will use up the lifetime exemption.

The giftee does not file.
bogcir
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Re: Gifting money - lifetime gift tax exemption question

Post by bogcir »

MickMal wrote: Mon May 17, 2021 5:11 pm May I please ask fellow Bogleheads a question regarding the lifetime gift tax exemption? If a parent wishes to distribute cash (more than $15,000 per person) to their family within their lifetime, they can do so tax free provided the total amount is less than $11.70 million and an IRS form 709 is filed. The individual receiving the gift does not need to file any forms with the IRS. Do I have that right? I thank you in advance for the input.
That's right. But note that the exemption drops to ~$5M after 2025.

So if one person gifts $1,015,000 this year, their exemption will be $11.70M - $1M = $10.7M until 2025. After 2025, it will be ~$5M - $1M = ~$4M
billfromct
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Re: Gifting money - lifetime gift tax exemption question

Post by billfromct »

The $15,000 gift to a single person (without reporting the gift) is per year, not “within their lifetime.”

You may already know this but I just wanted to make sure there was no confusion.

bill
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MickMal
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Re: Gifting money - lifetime gift tax exemption question

Post by MickMal »

Thank you all for the input which is appreciated.
dukeblue219
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Re: Gifting money - lifetime gift tax exemption question

Post by dukeblue219 »

Don't forget a married couple can give $60k per year to a married couple ($15k per giver and per receiver). Some people keep it a little lower than the true limit to allow for other gifts during year (birthday, holidays, etc).
Jack FFR1846
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Re: Gifting money - lifetime gift tax exemption question

Post by Jack FFR1846 »

Be careful.....Massachusetts and a few other states have a tax cliff at $1M. Add one more dollar to the estate and there's tax from dollar #1. So $1M, no tax. $1,000,001, $50k in taxes. If you're gifting more than the federal limit annually, that gets subtracted from the $1M number for the point where taxes come in.

Remember you can pay tuition to the college directly and medical bills directly to the provider with no counting that money towards the annual limit. So $70k in Junior's tuition and another $15k gift, no reduction in lifetime limit.
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Domadosolo
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Re: Gifting money - lifetime gift tax exemption question

Post by Domadosolo »

MickMal wrote: Mon May 17, 2021 5:11 pm May I please ask fellow Bogleheads a question regarding the lifetime gift tax exemption? If a parent wishes to distribute cash (more than $15,000 per person) to their family within their lifetime, they can do so tax free provided the total amount is less than $11.70 million and an IRS form 709 is filed. The individual receiving the gift does not need to file any forms with the IRS. Do I have that right? I thank you in advance for the input.
does form 709 only report the amount above the 15K?
increment
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Re: Gifting money - lifetime gift tax exemption question

Post by increment »

Domadosolo wrote: Mon May 17, 2021 7:24 pm does form 709 only report the amount above the 15K?
You report the entire amount on the form, but only the part above $15k counts against the lifetime exemption.
rtt22
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Re: Gifting money - lifetime gift tax exemption question

Post by rtt22 »

increment wrote: Mon May 17, 2021 9:00 pm You report the entire amount on the form, but only the part above $15k counts against the lifetime exemption.
This form 709 is too complicated for me to comprehend. It looks like Page 1, Part 2 (Tax Computation) computes the tax due from the amount above $15K right then and there. Where on this form computes the "lifetime exemption"? Thank you for any help.
bogcir
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Re: Gifting money - lifetime gift tax exemption question

Post by bogcir »

rtt22 wrote: Mon May 17, 2021 9:49 pm
increment wrote: Mon May 17, 2021 9:00 pm You report the entire amount on the form, but only the part above $15k counts against the lifetime exemption.
This form 709 is too complicated for me to comprehend. It looks like Page 1, Part 2 (Tax Computation) computes the tax due from the amount above $15K right then and there. Where on this form computes the "lifetime exemption"? Thank you for any help.
I haven't personally filled out this form either, but top of Page 5 under

Part 2—GST Exemption Reconciliation (Section 2631) and Section 2652(a)(3) Election

1. Maximum allowable exemption (see instructions) _______________________

Instructions: https://www.irs.gov/pub/irs-pdf/i709.pdf

Page 18 has a chart of exemptions through 2020

2020.... $11,580,000
rtt22
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Re: Gifting money - lifetime gift tax exemption question

Post by rtt22 »

bogcir wrote: Mon May 17, 2021 9:56 pm
rtt22 wrote: Mon May 17, 2021 9:49 pm
increment wrote: Mon May 17, 2021 9:00 pm You report the entire amount on the form, but only the part above $15k counts against the lifetime exemption.
This form 709 is too complicated for me to comprehend. It looks like Page 1, Part 2 (Tax Computation) computes the tax due from the amount above $15K right then and there. Where on this form computes the "lifetime exemption"? Thank you for any help.
I haven't personally filled out this form either, but top of Page 5 under

Part 2—GST Exemption Reconciliation (Section 2631) and Section 2652(a)(3) Election

1. Maximum allowable exemption (see instructions) _______________________

Instructions: https://www.irs.gov/pub/irs-pdf/i709.pdf

Page 18 has a chart of exemptions through 2020

2020.... $11,580,000
I appreciate the reply. One question: GST is for "Generation Skipping Transfer" - when does this apply? If I gave $50K to my son, was it a GST? If I gave to my grandson, was it a GST? If my son gave to me, does he need to fill out Form 709?
bogcir
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Re: Gifting money - lifetime gift tax exemption question

Post by bogcir »

rtt22 wrote: Tue May 18, 2021 6:10 am
bogcir wrote: Mon May 17, 2021 9:56 pm
rtt22 wrote: Mon May 17, 2021 9:49 pm
increment wrote: Mon May 17, 2021 9:00 pm You report the entire amount on the form, but only the part above $15k counts against the lifetime exemption.
This form 709 is too complicated for me to comprehend. It looks like Page 1, Part 2 (Tax Computation) computes the tax due from the amount above $15K right then and there. Where on this form computes the "lifetime exemption"? Thank you for any help.
I haven't personally filled out this form either, but top of Page 5 under

Part 2—GST Exemption Reconciliation (Section 2631) and Section 2652(a)(3) Election

1. Maximum allowable exemption (see instructions) _______________________

Instructions: https://www.irs.gov/pub/irs-pdf/i709.pdf

Page 18 has a chart of exemptions through 2020

2020.... $11,580,000
I appreciate the reply. One question: GST is for "Generation Skipping Transfer" - when does this apply? If I gave $50K to my son, was it a GST? If I gave to my grandson, was it a GST? If my son gave to me, does he need to fill out Form 709?
Honestly I’m a little vague on the specifics of the GST but it is the same limit amount as the other exemptions.

For gifts to your son or gifts from your son of > $15k would simply fall under the normal gift tax requirements. So form 709 would have to be filled out.

For grandchild (defined as anyone > 37.5 yrs younger), the GST appears to kick in, but it’s not entirely clear to me the implications.
dukeblue219
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Re: Gifting money - lifetime gift tax exemption question

Post by dukeblue219 »

bogcir wrote: Tue May 18, 2021 8:18 am For grandchild (defined as anyone > 37.5 yrs younger), the GST appears to kick in, but it’s not entirely clear to me the implications.
Anyone unrelated AND 37.5 years younger, OR more than one generation younger if related. Just to be clear, if your kids are 38 years younger than you (quite common now) this isn't even an issue at all.
Nowizard
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Re: Gifting money - lifetime gift tax exemption question

Post by Nowizard »

Two questions about earlier responses: 1. One indicated that the approximately 11M lifetime exemption was per person. I thought that total would be for a couple such as husband and wife; 2. One indicated that approximately 15K could be given by each member of a couple and for the recipient, making a total of 60K rather than 30K from a couple. Where am I wrong?

Tim
senex
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Re: Gifting money - lifetime gift tax exemption question

Post by senex »

Nowizard wrote: Tue May 18, 2021 8:44 am Two questions about earlier responses: 1. One indicated that the approximately 11M lifetime exemption was per person. I thought that total would be for a couple such as husband and wife; 2. One indicated that approximately 15K could be given by each member of a couple and for the recipient, making a total of 60K rather than 30K from a couple.
The exemption is per person. If a spouse dies, the surviving spouse can "port" any unused exemption by filing a full estate tax return within 9 months of death. Say the husband dies, leaving 1M to son and the rest to wife. If wife does all the paperwork within 9 months, then wife will now have approx 21M exemption (11M of her own, plus the 10M unused portion of husband's).

When the exemption drops to approx 6M, it's unclear how the IRS will treat the ported portion (will it remain 10M in the example, or be cut to 6M?). My reading of the current tax form is that it will remain at 10M. But I may be misreading, and all such things are subject to change.

A couple giving to one person can gift 30k without reporting (15k from husband, 15k from wife). A couple giving to a couple can gift 60k without reporting (15k husband -> son, 15k husband -> daughter-in-law, 15k wife -> son, 15k wife -> daughter-in-law).
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Re: Gifting money - lifetime gift tax exemption question

Post by niceguy7376 »

Nowizard wrote: Tue May 18, 2021 8:44 am 2. One indicated that approximately 15K could be given by each member of a couple and for the recipient, making a total of 60K rather than 30K from a couple. Where am I wrong?
Tim
Husband1 and wife1
Husband2 and wife2
H1 to H2 - 15K
H1 to W2 - 15k

W1 to H2 - 15K
W1 to W2 - 15k

Total 60k
FootballFan5548
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Re: Gifting money - lifetime gift tax exemption question

Post by FootballFan5548 »

I had a quick question on this topic... We're starting a home renovation including adding a bedroom and bathroom for my inlaws as they start to downsize.
The full reno (including kitchen work etc) is like $250k. My inlaws have mentioned covering some of it or at least the bedroom share since they're going to use it.

If hypothetically they wrote a $100k check to the builder directly, for use in OUR home reno, is there any way to track that or report that. Technically it's a gift for us, but its' going directly to the builder, would it be reportable?
bogcir
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Re: Gifting money - lifetime gift tax exemption question

Post by bogcir »

senex wrote: Tue May 18, 2021 8:58 am When the exemption drops to approx 6M, it's unclear how the IRS will treat the ported portion (will it remain 10M in the example, or be cut to 6M?). My reading of the current tax form is that it will remain at 10M. But I may be misreading, and all such things are subject to change.
My read of this is that the ported 10M would stand but it’s not explicit. I’ve seen this interpreted that way elsewhere too.

https://www.irs.gov/newsroom/estate-and-gift-tax-faqs
The regulations provide a special rule that effectively allows the estate to compute its estate tax credit using the greater of the BEA [basic exclusion amount] applicable to gifts made during life, or the BEA applicable on the date of death.
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RickBoglehead
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Re: Gifting money - lifetime gift tax exemption question

Post by RickBoglehead »

FootballFan5548 wrote: Tue May 18, 2021 9:00 am I had a quick question on this topic... We're starting a home renovation including adding a bedroom and bathroom for my inlaws as they start to downsize.
The full reno (including kitchen work etc) is like $250k. My inlaws have mentioned covering some of it or at least the bedroom share since they're going to use it.

If hypothetically they wrote a $100k check to the builder directly, for use in OUR home reno, is there any way to track that or report that. Technically it's a gift for us, but its' going directly to the builder, would it be reportable?
They are clearly gifting you $100,000.
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dukeblue219
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Re: Gifting money - lifetime gift tax exemption question

Post by dukeblue219 »

FootballFan5548 wrote: Tue May 18, 2021 9:00 am If hypothetically they wrote a $100k check to the builder directly, for use in OUR home reno, is there any way to track that or report that. Technically it's a gift for us, but its' going directly to the builder, would it be reportable?
No, it would not be tracked or reported automatically, nor would a check for a million dollars that had "GIFT" written in big letters in the memo line.

Yes, it must be reported as a gift by your in laws.

Much of the tax system is self-reported, but it doesn't change the law or provide an out if you get caught. Fortunately it's not up to you as the recipient to do a thing.
senex
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Re: Gifting money - lifetime gift tax exemption question

Post by senex »

FootballFan5548 wrote: Tue May 18, 2021 9:00 am If hypothetically they wrote a $100k check to the builder directly, for use in OUR home reno, is there any way to track that or report that. Technically it's a gift for us, but its' going directly to the builder, would it be reportable?
Agree with Rick, it sounds like a gift. Gifts are reportable even if they are paid to a third party.

Agree with Duke, the tax system is largely self-reported, and you should follow the law, even if there is no tracking.

If it were me, I would have them give $60k this year and $40k on Jan 1, and avoid the paperwork.
dukeblue219
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Re: Gifting money - lifetime gift tax exemption question

Post by dukeblue219 »

senex wrote: Tue May 18, 2021 9:19 am
If it were me, I would have them give $60k this year and $40k on Jan 1, and avoid the paperwork.
Yeah I don't even think there's a step transaction issue with that. The gift is not illegal, just limited per year. Maybe even make it 50 and 50 so you can allow for birthday/holiday gifts as well if you want to be particularly clean about it.

Family dynamics also play a role here. If the inlaws offer a $100k check, I'd personally just accept it and say thank you, rather than awkwardly asking if they're complying with the tax code.
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RickBoglehead
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Re: Gifting money - lifetime gift tax exemption question

Post by RickBoglehead »

Keep in mind that a $100,000 payment to the builder directly also opens you up for a potential problem in the future.

10 years down the road, you sell the house and go to calculate your gain, which is basically selling price minus cost. Your "cost" would include the cost of the upgrades. However, $100,000 of those upgrades were not paid for by you in the example you gave. Therefore, if you put them in the cost side of the equation, that's a problem. If you left them out, you have a gain on $100,000 more in the sale.
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JackoC
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Re: Gifting money - lifetime gift tax exemption question

Post by JackoC »

dukeblue219 wrote: Tue May 18, 2021 9:23 am
senex wrote: Tue May 18, 2021 9:19 am If it were me, I would have them give $60k this year and $40k on Jan 1, and avoid the paperwork.
Yeah I don't even think there's a step transaction issue with that. The gift is not illegal, just limited per year. Maybe even make it 50 and 50 so you can allow for birthday/holiday gifts as well if you want to be particularly clean about it.

Family dynamics also play a role here. If the inlaws offer a $100k check, I'd personally just accept it and say thank you, rather than awkwardly asking if they're complying with the tax code.
I agree, would be the common overstatement of 'step transaction' or 'structuring' issues to suggest any problem splitting a gift into two years to avoid the giver having to file. It's a limit per year, with no evidence of any quibbling by IRS about 'step' or 'structuring' depending how it's spent.

I also agree, I think we're agreeing. My baseline assumption is that I make sure I'm complying with tax law and it's other people's business whether they are. Some may disagree and see themselves as obligated to be informally deputized tax enforcers, I don't. I'd give advice if asked specifically about it. For example when/if my kids starting gifting to their kids and I'm still around, they'll probably ask me if there are any hidden traps because in habit of asking me advice like that. But even if my parents or in-laws had given us $100k or I'd accepted it in principal (neither ever happened or was ever likely) I would not have made an unsolicited inquiry into how they were handling the tax aspect: their business.
Nowizard
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Re: Gifting money - lifetime gift tax exemption question

Post by Nowizard »

Niceguy and Senex: Thank you for the clarification. I thought both the annual and lifetime exemptions were for a couple, not individually. I think the lifetime exemption, even after 2025 will be ample for an extremely high percentage of folks!

Tim
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