Gift Taxes

Many times when younger people buy homes, parents get involved and assist with down payments and renovations.  Sometimes it’s a big down payment as a wedding gift, or just a way for a parent to help their son or daughter settle down.  Be sure to consult your accountant or attorney for any questions, as this is merely a brief overview.

The Basics

The federal government taxes all gifts, and this tax is always paid by the giver, never the receiver (or donee, as used in IRS documents).

There are two major exceptions.

1. Each giver can give a specific receiver $13,000 per year.  A married couple can give $26,000 per year to an individual.
2. Each giver has a lifetime exclusion of $1,000,000, which is used up after one uses the $13,000.  So if you give $23,000 to an individual in one year, then $10,000 is subtracted from your $1,000,000 lifetime exclusion.

How to Use the Gift Tax Exclusions

If you’re married, and your child is married, you can give $13,000 x 4 = $52,000 each year to your child and her spouse.  If you need to give more, or if you aren’t married, or your child is not married, then you need to spread the money out over more than a year or use up some of your $1,000,000 lifetime exclusion.

If you’re needing to give more than the annual exclusion to your child, you can set up a bank account where you and your child both have access, and deposit the annual exclusion limits into it every year.  If you don’t trust your child completely, then there are other ways such as with a simple trust that your attorney can assist you with.  This trust could have rules on it saying that your child doesn’t have access to it for 3 years, but that it belongs to the child alone.

More Information

• Intuit.com has a great article describing the gift tax in depth, including why it’s created and how it relates to the estate tax.
• The IRS has several articles regarding the gift tax, including this Frequently Asked Questions section.  Note that the official IRS Gift Tax publication was published 12/24/2009–be sure to check the IRS page or consult a professional regularly, as #s and rules can change every year.