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Annual Gift Tax Exclusion

Solon, OH |

Can an 18 year old college student who is still claimed as a dependent on her parents tax return and who files a tax return, gift up to $12,000 to each of her parents in 2008 to her parents pay for living expenses with paying any gift tax?

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Attorney answers 3


Under federal law, each adult person can make a gift up to $12,000 (up to $13,000 in 2009) per person per year without incurring any gift tax consequence and even without filing a gift tax return. It has nothing to do with income taxes or dependents. The recipient of the gift never has to pay any gift or income taxes. Just be sure everything is documented as a gift so that it is not construed as a payment or reimbursement for the living expenses.

In addition, you can gift up to One Million Dollars without any gift tax to pay. You just have to file a Gift tax Return, form 709 to show the gift. Everyone has a One Million Dollar exclusion from paying Gift Taxes. So, the return is filed showing the gift and using the exclusion so no taxes have to be paid. The recipient of the gift, even a large one, never has to pay any gift or income taxes.


If the student has $24000 to give away, can the student qualify as a dependent?

You may want to sit down and look at the numbers to see whether the student is anybody's dependent. The critical test here likely is the support test.


I generally agree with Attorney Steiner. You question is narrowly focused on gifting and not whether or not the person qualifies as a "dependent," which is altogether another issue. Although generally, in most cases, there will not be tax on a gift if the lifetime of gifts fall under the exclusion, Form 709 should ALWAYS be filed to track the lifetime gifts so that if there is ever any question then there is proper documentation to provide the IRS if a question is ever raised. Also, it is not a good idea to pay out the maximum amount of $12,000. In order to leave a bit of room or "cushion" for any gifts that techincally were gifts but are later challenged, I would suggest only gifting $11,000 or $11,500 as a further means of protection. The question does not specificy what is being gifted, but the gift tax rules can vary depending on what is gifted and if it is anything other than cash (such as a future interest in property) then you need to consult with a qualified tax professional with experience in this area. My only exception with Attorney Steiner is in regard to the comment that "The recipient of the gift, even a large one, never has to pay any gift or income taxes." My understanding, although this should be verified with a tax professional who is experienced in handling gift tax issues, is that THIS IS INCORRECT AS IT RELATES TO THE WORD "NEVER." Under 26 U.S.C.A Sec. 6901 (I.R.C Sec. 6901), A DONEE MAY ALSO BE LIABLIE FOR THE GIFT TAX IF IT IS NOT PAID. Therefore, to the extent there is tax owing due to a donee gifting beyond the lifetime exclusion, or more complex gifts are made, it is in your best interest to consult with a tax professional.