Tax free gift question

My parents wants to gift $20K to my sister. My understanding is somebody can gift $13K tax free, but my father and mother could each gift her up to $13K. In order to do things correctly under IRS rules, does my father need to write a $10K check, and mother have to write a $10k check? If they have a joint checking account, can they just write one check for $20K, even though only one of them signs the check?

Thanks in advance.

Reply to
odiegoogle
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The exemption amount was raised to $14,000 last year. However that doesn't change your parents' situation.

The easiest (from a tax standpoint) approach would be for them to each write separate checks.

They are not required to, however. If the entier gift is made in one check, however, they may be required to file a gift tax return and claim it as a split gift. No tax will be due, but it adds a layer of bureaucracy. I say "may have to" because it will come down to a matter of fact of how much of whose money it was.

If they live in a community property state, however, all property is presumed to belong one-half to each. In that case they could write one check for the entire gift, and not worry about the gift tax return.

Reply to
Stuart Bronstein

Sorry to hijack somebody post but cannot think of a better title for my question.

Clarify for me what Tax free gift is. Tax free as income for the recipient? Tax free from some kind of early inheritance to the recipient or the donor?

Mauro

Reply to
MG

Well, at least it's about taxes.

There are different kinds of taxes. When someone gives a gift, the recipient is not normally required to pay income taxes on that gift. Instead there is a gift tax.

Gift tax has two exemption levels. The first is an annual exemption amount, and it applies to any gift from one individual to another. Right now the exemption amount is $14,000 (increased for inflation).

So any person can give any one or more persons up to $14,000 each. Not only will no gift tax be payable, but no gift tax return is required.

For gifts that exceed the exemption, there is a $5,250,000 lifetime exemption (increased for inflation). People who make larger gifts have to file a tax return, but don't actually pay a tax until their total reportable gifts exceed that amount.

The gift tax is combined with the estate tax, and they have a combined lifetime exemption. So using up the lifetime exemption for gift tax also reduces the estate tax exemption when the donor dies.

Multi-volume sets of books have been written on the subject of gift taxes alone. If you want more general information, you should check your local library.

Reply to
Stuart Bronstein

A good source of information is "Estate and Gift Taxes" section of IRS Pub

559, which is available at
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It includes some concrete examples, including one or two that cover the original question.

PS: IRS Pub 950 used to contain this information. But apparently, it has been retired.

Reply to
qguy

Sorry to hijack somebody post but cannot think of a better title for my question.

Clarify for me what Tax free gift is. Tax free as income for the recipient? Tax free from some kind of early inheritance to the recipient or the donor?

==========Gifts are always income tax free to the recipient. What is being asked here is when it is tax free for unified gift/estate tax purposes by the donor.

For the community property state assumption of splitting, the check should be written from a joint account. Separate accounts ()i.e. not shared with a spouse) don't necessarily imply community property.

Reply to
D. Stussy

Pub 950 still exists, but it is one of those pubs that is not updated every year. Search under "prior year" forms and pubs to find it at the IRS web site. The most recent version is dated 2011.

Some of the info has been moved to Pub 559.

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Reply to
Mark Bole

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