What the IRS Considers as Gifts

If you transfer any asset, whether cash, real property or other assets to another and the receiver does not pay the full fair market value, the donation is considered a gift. For example, if you sell a piece of property with a fair market value of $100,000 to your son for $20,000, the gift is $80,000.

Exclusions

Some gifts are excluded from being taxed. These include any gifts with a fair market value of less than the annual exclusion. In 2017, the annual exclusion is $14,000 per gift per person, and $28,000 per gift per married couple. Furthermore, certain medical and educational gifts are excluded, gifts to your spouse are excluded, and gifts to a political organization are excluded. Gifts to certain charities may also be excluded. When making an educational gift, it may only be used for tuition. A gift for books, supplies and living expenses is subject to the gift tax. As for medical expenses, those gifts must be paid directly to the medical institution to be exempt from the gift tax.

Retaining an Attorney

You may not need an attorney for all gifts. However, if a gift is over $14,000 to any one individual or your total lifetime gifts add up to over $5.49 million (2017), you will want to retain a tax attorney, as you will be liable for any amount gifted over that threshold. Keeping track of the yearly amounts are easy enough, but if you give $14,000 to 20 grandchildren, nieces and nephews every year, that is $280,000 each year. In just over 19.5 years, you will have met the lifetime threshold and will have to pay gift tax on any gifts over that amount.

In planning gifts, you should not forget your estate. Upon your death, depending on how your estate is transferred, it could be counted against the gift threshold, depending on how you have your estate set up. Thus, retaining a tax attorney and an estate attorney to help you plan a strategy for gift taxation.

Selling Gifted Property

If at some time you should decide to sell property that has been gifted to you, in most cases, your basis in the property is the same as the donor’s basis. For example, if you were gifted stock that was purchased for $20 per share, your basis is $20. If you sell the stock at $100 per share, you would pay income tax on $80 – the current value minus the basis.

Using Trusts

Setting up trusts in a certain manner may reduce or eliminate the estate tax, and in some cases, the gift tax. If you have enough assets to break the estate and/or gift tax thresholds, you should retain an attorney with knowledge in taxes and probate to help you determine how best to set up probate and plan for gift and estate taxation. Certain variations of living trusts may help you save money in the long run.

Unified Credit

Since the estate tax and gift tax are integrated, if you count gifts against your lifetime credit, you will have less to offset the estate tax after you pass. An attorney will be able to help you determine which saves you more money – paying the gift tax upfront or using the lifetime gift tax or estate tax when your property passes on to your heirs.

Contact France Law Firm

For all tax-related questions, including managing gift-giving, whether in the form of real property or other property, contact France Law Firm. We will help you determine the best way to manage gift giving, your estate and other decisions that may have an impact on your finances.

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