Gift Tax

[SensibleandHourly]

Good morning, Community, 

Maybe because it's a Monday that would explain why I'm a little slow today! 😉  But trying to work through the ramifications if a parent gifts her only child approx 200k to purchase a home. The $$ came from the sale of her home. I know she would have to file Form 709 but I've only filed this form once before and don't want to miss anything. Also, I still wonder if she wouldn't be better off to purchase the home and simply leave it to her son in her will. 

Thank you, everyone, for any additional insight, 

Dawn 

[George4Tacks]

There is an inheritance tax when someone passes away and is worth over a given amount. Let's say $6,000,000. When a gift is made, then anything over the annual limit (say $15,000) is then recorded to reduce the Inheritance tax limit.

In this case $200.000 is $185,000 over the $15.000. This mean upon death the limit for inheritance tax is $6,000,000 -$185,000 = $5,815,000. 

Is this hypothetical person worth anywhere near $6M? Do they want to have a will probated?  

P.S. I am cheap, so I do the 709 as a demo, then plug the numbers into a fillable pdf and mail it. 

[Jim-from-Ohio]

One potential issue is if a sale took place. say the kids lived in the house two or three years then it sold for a gain of $ 100,000.  if the parents still owned the home they would not qualify for the home exclusion gain as it is not their principal residence.  I am sure there are other factors that go into the decision but that is one I thought of. 

[SensibleandHourly]

Thank you, and no, the client does not have near that level of wealth. 

[SensibleandHourly]

Appreciate the response! I, too, considered the possible ramifications of stepped-up basis, but I also am concerned that a Medicaid strategy may be appropriate. I did encourage them to speak to an attorney before making a decision with potentially multiple financial ramifications. 

[BobKamman]

@George4Tacks  confuses the issue with the reference to "inheritance tax."  Only states have inheritance tax, and most of them don't.  The federal government has an estate tax, the current exemption for which is $12 million, but that can always change.  Reduction is always possible.  IRS doesn't give a rodent's posterior about whether a gift tax return is filed, it just causes more work and no revenue for the American people, but it doesn't take long to fill one out if voluntary compliance with idiot rules is a thing for your client.  

Whether she owns the house or gives the money away so the only heir can buy one, doesn't make much difference in Medicaid planning ("Mom goes to the county home at taxpayer expense, while the kid goes on a cruise").  How much money does she have left, once she depletes her bank account by $200K?  My experience has been that those who can't afford to give money away, do it anyway, and those who can afford to be generous, aren't.