Category Archives: Gift tax

Dear Liza: I want to buy a home in Arizona and my Mom wants to loan me the 40k for my 20% down. It’s from her savings account. My broker said she should do a letter saying she is “gifting” it to me.  She lives in California. Will this cause her any issues with the IRS? can she loan it instead? Your Mom can give you the money or loan you the money, it’s up to her.  If she gives you the money, she will need to file a gift tax return next year.  But, she won’t owe any gift tax because each person is currently allowed to give (I kid you not!) five million dollars, free of gift tax.  Her 40K gift to you will mean that she only has $4,960,000 left of her lifetime gifting credit. This shouldn’t cause her major trouble, right? If, instead, she’d rather make a loan to you, she can do so. But the loan should be in writing, the interest rate must be at least equal to the published federal rate (AFR) for that month, and the loan should be secured by the property. Here’s a good article on family loans that you might find helpful.

Dear Liza, My Dad recently gave me a gift of $13,000. Do I have to report this on my income tax return next year? Nope. Gifts are not considered ordinary income under the US tax code. So, you don’t have to report the gift. If there’s any tax to be paid, it is paid by the gift-giver (in tax-speak, the ‘donor’), not by the recipient (in tax-speak, the ‘donee’). However, your very nice Dad just gave you the maximum amount that he can give to any one individual each year without having to report the gift (in tax speak, this is an ‘annual exclusion gift’), so you are both completely within the law, and the transaction is entirely tax-free. Nicely done!