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Giving tax-free gifts to my children

Paterson, NJ |

As I understand, I can give up to $12,000 to each of my children (or their spouses) without this amount being subject to the federal gift tax. Will this amount be taxable by the donor (me) or recipient (my children) by any New Jersey taxes, such as a New Jersey gift or income tax?

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Attorney answers 3

Best Answer
Posted

The annual gift tax exclusion is now $14,000 per person, per year; There is no New Jersey gift tax and there will be no New Jersey income tax consequences to you or your children; As the other attorneys noted, there may be more efficient ways to gift or transfer assets to reduce your estate for estate taxes or to avoid long term care costs; You have a lifetime gift tax exclusion of $5,120,000 and may be able to gift or transfer more than the annual exclusion, depending on your reasons for the transfers. Good luck!

Asker

Posted

Thank you for your thorough response. Why doesn't NJ tax the gift as income? My accountant said my university grants and scholarships were taxable as income. So why wouldn't a gift be? I guess I don't see the difference between a gift and a scholarship. On another note, I believe that $5.12 million was the 2012 federal exemption and in 2013, this was raised to $5.25 million.

Kevin Andrew Pollock

Kevin Andrew Pollock

Posted

NJ doesn't have a gift tax. A gift from a family member is not considered income by statute if it is truly a gift. A scholarship is not a true gift. That being said, you may want to get a second opinion on the taxability of the scholarships you received. Only certain ones are taxable. Here is a good article on that topic: http://www.fastweb.com/college-scholarships/articles/35-is-your-scholarship-taxable

Lawrence A Friedman

Lawrence A Friedman

Posted

When Amy says, "there will be no New Jersey income tax consequences to you or your children" she means no income tax would be charged to either donor or donee on a gift. However, gifts can have income tax consequences in that property acquired by lifetime gift often has built in taxable gain that triggers tax when sold whereas property acquired due to death, takes a basis of death value (or alternate valuation date value), which often avoids capital gain tax. Also gifting a principal residence can forfeit various tax breaks.

Amy S Mac Isaac

Amy S Mac Isaac

Posted

Kevin Pollock is correct... NJ does not have a gift tax; he is also right about scholarships - not all are taxable, depends on certain conditions; the federal estate & gift tax exemption has been adjusted for inflation to $5.25mil for 2013; let's hope NJ doesn't implement a gift tax!

Posted

There is a combined federal estate gift tax system. You alone can give $14,000 to as many people as you want generally or make a combined gift with your spouse of $28,000 (even if just one spouse is providing all the funds). So, if you were married, you and your spouse could give $28,000 to child A and $28,000 to Child B etc... without using any of the federal estate gift tax credit. You should consult an estate planning attorney before making gifts, as there are frequently more efficient ways of making gifts.

Lawrence A Friedman

Lawrence A Friedman

Posted

True but unless you expect to amass over $5,000,000, there would be no gift tax even if you give far more than $28,000 to one child. NJ has no gift tax. I think CT is the only state with a gift tax, but I'm not certain.

Posted

Mr. Bernick is correct. Actually you can give $14,000 to each donee (recipient). If you give about that amount (or $28,000 for gifts if you are married) you simply may need to file a federal gift tax return, but that does not mean you have a gift tax to pay. The amounts you gift each year over and above the allowable amount go against your lifetime gift and estate tax exmption which currently is 5.12 million indexed for inflation (or 2x that for a couple), so this means that unless you give away quite a lot during life and at death you probably won't have a gift or estate tax when you pass. Recipients in NJ also have no income tax issues on a state or federal level. It is possible that depending on the size of the gift and the proximity of the gift to death that it will effect your NJ estate tax.

This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/

Asker

Posted

Thank you. I believe however that $5.12 million was the 2012 federal exemption and in 2013, this was raised to $5.25 million.

Steven M Zelinger

Steven M Zelinger

Posted

Accuracy is important - you are correct. I suposse you could say who's counting $130,000 at that point!