Gifting to Kids and Family Members

The same questions tend to come up when clients consider gifting to their children or other family members.  Let’s take a look at a few of the most common questions.

  • How much can I give my kids this year without any tax implications? The annual gift tax exclusion is $15,000 in 2019.  That applies on a per-person basis, so you can make a $15,000 gift this year to each child.
  • Does that mean I have to pay taxes on a gift of more than $15,000 this year? No, but you will have to file Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return.  This is how the IRS keeps track of all lifetime gifts you’ve made in excess of the annual exclusion amount.
  • What about the recipient—will she owe taxes?   The recipient almost always receives a gift free of tax.  The giver must pay any taxes owed.
  • My spouse and I would like to help our daughter and her husband with the downpayment on their new home. How much can we give without any tax implications?  For 2019, each spouse can make a $15,000 gift to the daughter and a $15,000 gift to her husband, for a total of $60,000, without needing to file a gift tax return.[1]
  • Are there different rules for gifting to kids and gifting to others? Generally, no.  The same annual gift tax exclusion amount applies.  See the discussion below about gifting to non-U.S. citizens.
  • I’ve used stocks with a low cost basis to make charitable contributions in the past. Do low-basis stocks make good gifts?  No, they generally don’t.  You are able to take a charitable deduction based on the full current value of a low-basis stock when you make a donation.  However, if you gift low-basis stock to your child, your low cost basis carries over to the child, and she will owe capital gains taxes based on that lower cost basis when she sells the stock.
  • I sold my two year-old BMW to my son for $2,000. That’s not a gift, right?    The IRS considers any asset transferred for less than fair market value to be a partial gift.  If the car was still worth $35,000, then you’ve made a $33,000 gift, and you must file a gift tax return.
  • I would like to donate to my child’s 529 education savings plan. Am I limited to the annual gift tax exclusion amount?    A special tax provision allows you (or a grandparent) to donate up to five times the annual exclusion amount to a child’s 529 plan in a single year.  For 2019, the permissible amount is $75,000.  If you make this front-loaded gift, remember that you cannot make annual gifts to the child for the four years following the gift without having to file a gift tax return.
  • I loaned my child $25,000 about ten years ago to pay off his student loans, but now I would like to forgive the loan. Would this be considered a gift?    If the amount forgiven is more than $15,000 in 2019, then you need to file a gift tax return.
  • Some of our family members are not U.S. citizens. Are we able to gift to them?    Most of the gifting rules apply to U.S. citizens and non-citizens in the same way.  You can make a $15,000 gift this year to a non-citizen with no tax implications.  One difference is gifting to a spouse.  If your spouse is a U.S. citizen, you can gift an unlimited amount to her in any year.  If your spouse is not a U.S. citizen, you can make annual gifts of up to $155,000 in 2019 without triggering tax consequences.

 

Sources:  “Frequently Asked Questions on Gift Taxes,” IRS.gov; “Topic Number 431 – Canceled Debt – Is It Taxable or Not?” IRS.gov; “6-Year Gift Tax Averaging,” SavingforCollege.com (April 2, 2018).

Any opinions are those of Scott Boatwright and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice.

Raymond James Financial Advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lost money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state.

[1] There may be other reasons, like marital stability, that argue against making a gift to your child’s partner.  It’s always better to talk through these situations with your financial planner.

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