Ask Terry Questions Gifting and taxes on gift

Gifting and taxes on gift

By Terry Savage on March 05, 2020 | Wild Card

Here are 2 questions.
I’m thinking of gifting a family member $100,000. After I do so, I will fill out the Form 709 and file it with my 2020 tax return next year. The IRS will then deduct that amount from my $11.4 million lifetime gifting limit that they allow. In doing so, I will not be paying any gift tax on that amount at this time. Is that correct?
My family member has indicated that when he gets back on his feet and starts collection a pay check, he intends to gift me the same amount. Over a period of years, he will gift whatever he can, keeping it under the $15,000 exemption allowed each year. Can he legally do this or will this raise red flags with the IRS?

Terry Says

That is correct on both counts. BUT, have you considered making this a loan, with appropriate documentation? If you expect to get the money back this would be a good way to handle it. And if you don’t get the money back, you might be able to take a deduction for a bad loan. (In this case, the borrower might be taxed on the amount “forgiven” from repayment, though.)



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