You’ve just been gifted a sum of money either by a relative, or through a deceased person’s will. What tax implications come with it?
What Does “Gift” Actually Mean?
A gift is something given without the expectation of something in return.
When someone gives you money, with or without a reason, and it’s done without the expectation of being paid back, or something in return, it’s considered a gift.
Additionally, if someone sells you something, such as a house or a car, for less than fair market value, the difference between the sales price and the fair market value will be considered a gift. For instance, if you buy a vehicle that would normally sell for $20,000, but you sell it to someone who needs it for $13,000, the $7,000 difference is considered a gift.
Taxes Are For Donors
Recipients aren’t required to pay gift tax, but those who gift monies and assets are subject to federal and state laws. Their liability will depend on how much you’re gifted.
- If your parent gives you a $100 check for Christmas, generally, the answer is no
- If someone gives you a sum in excess of $15,000, then the donor will have to file a gift tax return for it
- But if the giver fails to file that gift tax return for an amount of over $15,000, the IRS may decide to collect it from you
Recipients generally don’t pay a gift tax on money given to them. Neither the IRS nor the State of Illinois have an estate tax for recipients.
An individual can gift up to a total of $15,000 per year to one or more individuals at a time. That means if you’re gifted $5,000, and your two siblings receive $5,000, the giver has reached his or her limit for the year. Go over that, and the giver is required to file a gift tax return, letting the IRS know that the threshold has been reached for the year. A married couple can each give $15,000 per year before the threshold is reached.
Individuals can give up to a lifetime federal limit of $11.58 million in 2020 and $4 million on a state level. Married couples can each give away that much, essentially doubling their gift amounts.
What Triggers A Gift Tax Return For The Giver
While these are not things people normally think about as tax-affected gifts, they usually are:
- Paying college tuition for children or grandchildren
- Wedding and/or honeymoon expenses
- Paying off debts (i.e., credit cards, cars, etc.)
- Down payment on a house
If someone is paying medical or educational expenses on your behalf, making payments directly to the medical or educational institution may help them avoid the requirement to file a tax return. Consult IRS Form 709 for more information.
James C. Provenza, Chicago Estate Planning Attorney
Are you considering gifting money to your family members? It’s never too early to begin your estate planning to ensure that your relatives receive what you want them to. Talk to an estate planning attorney who understands the law and is happy to work with you to ensure that your estate plan is exactly as you want it. James C. Provenza is an Illinois estate planning attorney with more than 25 years of estate planning experience. Call our firm today at (847) 729-3939, or use our online contact form.