When taking into consideration the $16,000 exclusion for 2022, each of you will report a taxable gift amount of $19,000 ($35,000 (1/2 of total gift) - $16,000 (annual gift exclusion for 2022) = $19,000 (taxable amount of the gift)). If you and your wife elect to split the $70,000 gift you gave to your son, each of you will report gifting $35,000 to your son. For this example, I will assume that the only gift you gave your son during the year was $70,000. As an example, let’s take a look at your tax situation. Each spouse can deduct the annual gift exclusion amount from the taxable portion of the gift. A tax advantage exists when spouses elect to split a gift for tax purposes. To elect to split the gift between you and your wife for tax purposes, your wife would need to agree. Even if only one of you made the gift, you could elect to split the gift between the two of you. If both of you gifted the money to your son, each of you would file a Form 709. Based on the wording of your question, I am assuming the $70,000 was a gift from both you and your wife. Had Joe given his friends any other gifts throughout the year (for example, gifting Fred a ticket worth $125 to the summer Blue Grass Festival), Joe would have been required to file Form 7 since he gave gifts that were worth more than the 2021 annual exclusion amount ($15,000).īecause you gifted your son at least $70,000 during the year, which exceeds the 2022 annual gift exclusion amount of $16,000 (I am assuming you gifted the money to your son in the current year), you and your spouse are required to file Form 709. Therefore, Joe was not required to file Form 7. Even though the total amount of gifts Joe gave that year was over $45,000 (Joe gave family members nominal birthday and Christmas gifts during the year), Joe had not given his three friends any other gifts of cash or property in 2021.įurthermore, none of his family members received cash and other property over $15,000 from Joe. So, to ring in the New Year in style, Joe gifted Wally, Fred, and Lawrence $15,000 each just before midnight on December 31, 2021. After he paid off his mortgage and car loan and paid for a cruise around the world, Joe wanted to share his good fortune with his three best mates. Joe had no idea that he was going to inherit such a windfall. When Aunt Maude passed away peacefully at age 99, her trust stated that her nephew Joe was to inherit one million dollars in cash. Joe was always close to his Aunt Maude and cared for her during her golden years. For 2018 through 2021, the annual gift exclusion amount was $15,000. For 2022, the annual gift exclusion amount is $16,000. Generally, a gift tax return is not required for federal tax purposes as long as a donor does not gift any one person over the annual gift tax exclusion amount during the year. Depending on the amount of past taxable gifts you have given, you might owe tax, although, for most folks, this is unlikely. Although your son does not have to report to the IRS or pay tax on the generous gift you and your wife gave him, the two of you have a gift return reporting requirement. Depending on the fair market value of all the gifts given to an individual during the year, the donor may have to file IRS Form 709, United State Gift (and Generation-Skipping Transfer) Tax Return. Here’s the interesting thing about gifts: it’s not the recipient that needs to be mindful of gift taxes but the donor who might have a tax obligation. In that case, the disposition of the asset obtained with the gifted cash may be taxable. Now, suppose the gift recipient (known in the tax world as the “donee”) takes the cash and invests it in stock, crypto, a new car, rare coins, or a nifty Pudgy Penguin NFT and later sells their investment. (For that matter, it is probably the #1 burning quandary on everyone’s mind when they receive cash.) I will not prolong the angst of anticipation and tell you right from the start that your son does not need to report or pay tax on the $70,000 you gifted him from the inheritance your wife received from her mother’s probate! Generally, when a person is gifted money, whether in the form of a check, automatic transfer, or cold hard cash, the jubilant recipient will not be required to report or pay taxes on their newly acquired bounty. “ Do I have to pay tax on this cash?” It is the million-dollar question that is on the mind of anyone who is gifted money. Does he need to pay tax on that money? Thank you! We paid off our mortgage and divided the remaining amount with our son (he received $70k). After probate, half of the money was deposited into our checking account via wire transfer. Hello, My spouse and her brother inherited money from the sale of her mother's house.
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