My grandparents recently passed away and left my parents some money. My parents gifted me 10K in December of 2009, and would like to gift me 30K in 2010 (as I may be purchasing a home). Do I have to pay taxes on the 10K in 2009? Additionally, how would the taxes work on the 30K in 2010? Do I have to claim it? Do my parents have to pay taxes on either gift? Thank you in advance for your advice! : )
Gifts are not taxable income to the recipient, but gifts in excess of a certain amount are subject to gift tax. In 2009 and 2010 the figure is $13,000. So in theory each of your parents could give you up to $13,000 (total $26,000) this year before becoming subject to the gift tax.
I don't hold law licensure in Washington so if there is some special wrinkle there I'm not the one who can advise you on it. Check with a local tax lawyer or accountant if you need tax advice.
I should clarify: The federal gift tax is a tax on the GIVER, not the recipient.
Real Estate Attorney
My colleague is correct. This is a CPA issue more than a legal issue. There are lifetime gift tax exclusions that may help your parents. You do not owe any tax and do not have to claim.
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First, a recipient of a gift never pays income tax on gifts.
Second, the issue is to do the right gift tax planning for your parents.
Third, your parent each have an annual donee exclusion of $13,000. So the gift in 2009 qualifies for such exclusion.
Fourth, each of your parent's are also allowed a lifetime gift tax exemption of $1,000,000. Until that amount is used up there is no gift tax to be paid.
Fifth, the strategy here is to try to preserve as much of the $1,000,000 exemption, because it impacts the person's estate tax exemption (currently $3,500,000) at death. For example, if your mom gave you a million dollars, she would pay no gift tax but would have "only" a $2,500,000 exemption at her death. This is only important if she has more than that amount after the gifts at her death.
Sixth, so for $2010, the $30,000 gift would be offset by your Dad's $13,000 and your Mom's $13,000 annual donee exclusion. The other $4,000 would use up $4,000 of your parent's available $1,000,000 exemption. Therefore, there would be no gift tax and a minimal use of their lifetime gift tax exemption.
Seventh: They must file a Form 709 to report these gifts.
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Your grandparents have an annual gift exclusion of $13,000 per year each ($26,000 total per year). They also have a life time exclusion for gifts of $1,000,000. Gifts are taxable to the Donor if these limits are exceeded. However, there is secondary liability to the Donee if the tax is not paid. Therefore, in 2009 the annual exclusion completely covers the gift, and in 2010 $4000 of the lifetime exclusion would have to be used requiring the filing of gift tax return (Form 709). You or your parents should not have to pay tax on any of the gifts so long as they have at least $4000 of lifetime gift tax exclusion remaining.
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