So when it comes to gifting—you know, making gifts to either family (or non-family) members—there’s a lot of things to consider, including some gifts that may have tax consequences—maybe not now, but later.

So if I remember correctly, you can gift up to a certain amount without having to pay taxes, correct?

Right. So you can give $15,000 to any person per year with no questions asked. You can actually give like $11.5 million over your lifetime without really any tax consequences to you as the giver. The only difference between the $15,000 and the $11.5 million (you know, other than the amount) is the fact that if it’s under $15,000 you don’t even have to file a gift tax return. You have no filing requirements at all.

Are there any gifts that don’t count towards the limits like you just mentioned?

There are. So:

  • Gifts from one spouse to another don’t count.
  • Your charitable contributions; that’s not really a “gift,” that’s more of just a donation.
  • Gifts made directly to a health care provider for medical expenses—you know, for your child or for somebody else.
  • Or if you decide that for a grandchild you want to give money and pay for their education, as long as you pay that directly to the school, those kind of gifts aren’t counted.

So where do taxes really come in, then?

So if you give cash, normally there’s no tax consequences. But if you give stocks or marketable securities—like let’s say you owned Apple for a long time and you decided to give it to your grandchild—they get the same basis that you have.

So in other words, if you bought Apple back when it was like $30 and now it’s $300, if your grandchild sells that at $300, they’re going to have a $270 gain. So that can be where the taxes come in later on, is that whatever basis that you were holding in those assets, that’s the basis that your children are going to hold in those assets—or whoever you gift it to, I should say.

And the other thing is homes. You know, right now for homes, if you’re single, you have a $250,000 gain exclusion and a $500,000 gain exclusion if you sell your home that you use as your main residence. Well, if you give that home to a family member, they don’t get that same exclusion. So if there’s a $100,000 gain on the sale of a home, where it would have been non-taxable to you, it becomes taxable to them. So that’s why you really want to be really careful about what you’re gifting and when you’re gifting.

So are there things that cannot be gifted?

There is: Income. So let’s say that you have IRA income, or something like that, where you’re getting a $10,000 IRA. You can gift the cash to them, but you cannot gift that income and not pick it up on your return and have the other person pick it up on their return. That you can’t do, because obviously that would be ripe for income shifting and fraud and everything else that goes along with that.

So what about paying expenses for a dependent child?

Not normally an issue; should not kick in any kind of gift tax consequences.

What are other reasons to make a gift, besides just wanting to give some love to someone?

There’s a couple reasons:

  • One at the high end of the scale, you know, if you’re over that $11.5 million and you don’t want to pay the estate tax (which could be upwards of 40 or 50 percent), you want to get some of those assets out of your estate and get it to other people before you pass away.
  •  

  • The other end is at the lower end of the spectrum, and that would mean that you have very few assets, but you don’t want to those assets to be counted for purposes like Medicare when you’re going into a nursing home, or something like that, so sometimes people will gift their homes to their kids at that point. But just remember: If you’re going to do something like that—for planning purposes—there’s a lookback period that Medicare and Medicaid look back at, so you’re going to want to make sure you really look into that, also.

 

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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