You’ve finished college, landed a great job, and have identified the perfect starter home. But as you examine your finances, you find you do not have sufficient funds in your bank account to buy a house, and with a minimum down payment, your monthly take home pay is a bit too low to cover the mortgage payments at this stage in your career. Discussing your disappointment with your parents, they offer to give you $100,000 which is just enough to help make the home affordable.
Is the $100,000 gift subject to gift tax?
In 2015, your parents can give you a total of $28,000 cash ($14,000 from each) and not worry about having to file a 2015 gift tax return. But if they give you more than $28,000 in 2015, they are required to file a gift tax return to report the total amount of the gifts they each made during the year. Assuming each parent is giving you half of the total amount, or $50,000, they will each file a gift tax return reporting the $50,000 cash gift to you. The first $14,000 is not a taxable gift; however, the remaining $36,000 is a taxable gift.
In 2015, the first $5,430,000 of assets gifted during a person’s lifetime (and/or transferred on death) is exempt from estate or gift tax. If your parents have not previously made any taxable gifts, then the gift tax return will report a taxable gift of $36,000 which reduces the $5,430,000 exemption amount for future gifting or transfers at death to $5,394,000 ($5,430,000 – $36,000).
So your parents will have to file a gift tax return to report the $100,000 gift to you, but they will not pay gift tax on this transfer, and will not pay gift tax on future transfers, until they have given away more than their remaining available exemption of $5,394,000.
By Pamela Wheeler, EA