Category Archives: Income Tax

Who pays tax on gifts?

White Gift Box with Red Satin Ribbon BowDear Liza: My brother gave me two checks totaling $200,000 in 2012 as a gift.  Who pays the tax on that? You have a generous brother! And, in the no good deed goes unpunished department,  it is the DONOR of the gift (your brother) who is responsible for reporting the gift and paying the tax due, if any. You, the DONEE, receive the gift free of tax because gifts are not ordinary income under the income tax rules.  In 2012, gifts under $5.12 million dollars are not subject to gift tax, but any gift over $13,000 must be reported on a gift tax return by April, 2013.  Your brother must file that return, which tells the IRS that he made you a gift of $200,000.  Assuming he hasn’t made other gifts that exceed that $5.12 million, though, no tax will be due.  Instead, by reporting the gift, your brother has used up some of his lifetime gift tax credit–the tax that would otherwise be due on a gift of $200,000.

Capital gains taxes on sale of house

Dear Liza: My daughter is on my deed as joint tenant with me.  If I die and she decides to sell the house,  will she have to pay capital gains taxes? When you die, your daughter will own the whole house, without having to go through probate.   If she then decides to sell the house, she will have to pay capital gains on the increase in value on the one-half of the house that she owned before your death.  The one-half of the house that she inherited from you will get a new tax basis for capital gains purposes, equal to the value of that one-half of the house when you died — this is called a ‘stepped-up’ basis.

Death and Taxes: The Basics

Dear Liza: My cousin passed away in 2011, and she had a revocable living trust. My cousins inherited the assets 50/50. The assets were stocks. Do my cousins have to file income tax returns for what they received? Also, am I required to file an income tax return for the trust? Your cousins inherited the stocks at their value on the date your cousin died in 2011. Inheritances are NOT ordinary income under the federal tax code, so they receive those assets free of federal income tax. (We have a federal estate tax; if any tax was due, it would have been on your deceased cousin’s estate, if she owned more than $ 5 million in assets when she died.)  Seven states have an inheritance tax, so they’ll need to check on whether any state inheritance tax is due.  Your two cousins will be responsible for filing income taxes on any dividends they received after inheriting the stocks, and for any capital gains earned when they sell that stock if it has appreciated since they inherited it. You, as Trustee, would be responsible for filing a trust income tax return (Form 1041) if the trust earned more than $600 worth of income between the time your cousin died and the time the trust assets were distributed to the beneficiaries.