The laws regarding gifts and taxes can be confusing to many.
Your parents have made wise financial decisions.
They now have a decent amount of money.
Maybe you are struggling a bit financially right now.
Maybe you are fine financially.
Either way, your parents gift you money.
Your parents love you.
Although you appreciate the gift, you are concerned.
Do you owe taxes on this gift?
According to a recent nj.com article titled “Are taxes owed on gift from in-laws?,” the answer is no.
These lifetime gifts made to you by your parents (or others) are not considered income.
As a result, they will neither be taxed as income nor will they put you into a higher tax bracket.
Will you parents owe taxes?
If they give more than the annual exclusion amount to an individual, then yes.
How much is the annual exclusion amount?
In 2018, it is $15,000.
They or you can give this amount to any number of people in a year.
What if their gift exceeds this amount?
Your parent will need to file a gift tax return (Form 709) and claim any gift exceeding the exclusion amount as a reduction against his or her future estate tax exemption.
With the federal estate tax exemption now sitting at $11,220,000 per person in 2018, this will not likely be a problem.
Can your parent claim a deduction on a gift to you, your children, or anyone else?
Deductions are allowed on charitable donations, but not on gifts to people.
To take a deduction on charitable donation, donations must be itemized.
Your parents should work with an experienced estate planning attorney to be sure their gifts align with their estate planning goals.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: nj.com (December 6, 2017) “Are taxes owed on gift from in-laws?”