Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

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Noobvestor
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Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Noobvestor »

In a nutshell: my question is "can I gift someone $100,000 without immediate or near-term tax consequences." *

From what I understand, there is the annual gift limit of $15,000. But there's also a lifetime limit that is over $10,000,000. I'm never going to hit the latter. The former in this scenario, well, I would obviously go over with $100,000. The person, for context, is not family by blood or marriage. A friend.

So I imagine two possible scenarios: (1) the gift is given, reported, and taxes are paid on it, or (2) the gift is given, reported, and is not taxed in any way, but does reduce future estate tax exemption in the (unlikely) event that when I die I have more than $10MM (in which case: I don't care).

Which of those two is it, or is it something else entirely? I've been reading around the IRS website and more broadly, and I can't seem to figure it out. I've visited the wiki page, etc... as well. Most gift tax advice seems to be around estate planning. I'm talking about giving a gift while alive. I've read summaries that suggest it's (1) or (2) and for whatever reason I can't seem to parse which this falls under. Thanks for any advice!

* Added the asterisk because in theory there could be end-of-life consequences for an estate, but that's not what I'm asking about.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by cbeck »

No one ever pays the gift tax. You certainly won't have to.

"Gifting" is an ugly locution, don't you think? Says no more than "giving."
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Soon2BXProgrammer »

Noobvestor wrote: Tue Jun 22, 2021 9:50 pm In a nutshell: my question is "can I gift someone $100,000 without immediate or near-term tax consequences." *

From what I understand, there is the annual gift limit of $15,000. But there's also a lifetime limit that is over $10,000,000. I'm never going to hit the latter. The former in this scenario, well, I would obviously go over with $100,000. The person, for context, is not family by blood or marriage. A friend.

So I imagine two possible scenarios: (1) the gift is given, reported, and taxes are paid on it, or (2) the gift is given, reported, and is not taxed in any way, but does reduce future estate tax exemption in the (unlikely) event that when I die I have more than $10MM (in which case: I don't care).

Which of those two is it, or is it something else entirely? I've been reading around the IRS website and more broadly, and I can't seem to figure it out. I've visited the wiki page, etc... as well. Most gift tax advice seems to be around estate planning. I'm talking about giving a gift while alive. I've read summaries that suggest it's (1) or (2) and for whatever reason I can't seem to parse which this falls under. Thanks for any advice!

* Added the asterisk because in theory there could be end-of-life consequences for an estate, but that's not what I'm asking about.
https://www.irs.gov/forms-pubs/about-form-709

You have to file a gift tax return and use some of your lifetime limit, besides that, nothing.

However if it is for medical purposes, you should just pay the provider. Or for school purposes, you should pay the school. There are even more generous rules if you pay the medical/school directly.
Last edited by Soon2BXProgrammer on Tue Jun 22, 2021 10:01 pm, edited 2 times in total.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Lee_WSP »

The above poster's hyperbole is incorrect but illustrates the current gift tax climate. You need to use up your lifetime exemption before the tax is applied.

The other poster is mostly correct, you don't get to choose whether to use up the exemption.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by 123 »

As long as the giver and the recipient are both in the United States the answer is #2 with respect to federal rules and taxation.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Jablean »

Not applicable I think in this case but if you were someone who might qualify for Medicaid you would want to somewhat track it as it would effect the 5 year look back (claw back) rule.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by billfromct »

Check your state estate tax rules.

I believe that Oregon & Massachusetts have estate tax thresholds as low as $1M and some other New England states estate tax kicks in from $1.5M-$5M estate value.

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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by pennywise »

Noobvestor wrote: Tue Jun 22, 2021 9:50 pm In a nutshell: my question is "can I gift someone $100,000 without immediate or near-term tax consequences." *
Yes
From what I understand, there is the annual gift limit of $15,000. But there's also a lifetime limit that is over $10,000,000. I'm never going to hit the latter. The former in this scenario, well, I would obviously go over with $100,000. The person, for context, is not family by blood or marriage. A friend.

So I imagine two possible scenarios: (1) the gift is given, reported, and taxes are paid on it, or (2) the gift is given, reported, and is not taxed in any way, but does reduce future estate tax exemption in the (unlikely) event that when I die I have more than $10MM (in which case: I don't care).

Which of those two is it, or is it something else entirely?
(2)

The mythical 'gift tax' seems to be one of the most incorrectly understood tax policies in the personal finance universe.

I can only surmise this is a holdover from olden days when the estate tax threshold was considerably lower. Or maybe it's the phrase--if there's a "gift tax" boogeyman, then everyone must assume they are gonna get attacked. In some very specific situations there might be a tax consequence but that's a vanishingly small percentage.

So yes, you can throw money at people without either of you paying taxes on it.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Gill »

It’s quite a different animal today. When I first worked in this area the annual exclusion was $3,000 and the lifetime exemption was $30,000. Today it’s more a matter of reporting rather than incurring a tax.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Katietsu »

Number 1 and 2 can come about by following the same rules. You fill out a gift tax form. You apply your lifetime exemption, currently $11.7 million. If your lifetime gifts exceed the exemption amount, you owe taxes now. If they do not, no taxes now just a reduction in the amount of exemption available for future gift giving and the estate at the time of death.

While the current lifetime exemption is high enough to impact only a tiny % of Americans, it has not and might not always be that way. As recently as 2001, the exemption was just $675,000, about $1 million in inflation adjusted 2021 dollars. If no action is taken, it will fall to about $6 million in 2026. I do not know if any states have gift taxes. I know that some states with inheritance/estate taxes include gifts given shortly before death, eg one year, in the estate/inheritance tax calculations.

Bottom line, you can give $100,000 now with no immediate tax consequences.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by GT99 »

Count me among those who misunderstood this rule. If #2 is the correct answer, is the point of the $15k annual rule just that any amount under $15k in a given year doesn't count against the lifetime giving?
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by David Jay »

GT99 wrote: Wed Jun 23, 2021 9:07 am Count me among those who misunderstood this rule. If #2 is the correct answer, is the point of the $15k annual rule just that any amount under $15k in a given year doesn't count against the lifetime giving?
And doesn’t require any paperwork
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Noobvestor »

Thanks for the helpful answers, all! And for pointing out that I should check on the state level, too.
pennywise wrote: Wed Jun 23, 2021 6:39 am The mythical 'gift tax' seems to be one of the most incorrectly understood tax policies in the personal finance universe.
I was really surprised at how muddle the various sources I read on the subject were - seems so easy to explain simply now that I know the answer!
pennywise wrote: Wed Jun 23, 2021 6:39 am I can only surmise this is a holdover from olden days when the estate tax threshold was considerably lower.
I think this must be part of the explanation. In the current world, for all but the ultra-wealthy, gift taxes seem like largely a non-issue, but clearly from the numbers people are posting in this thread, well, things were a lot different not that long ago.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by rich126 »

David Jay wrote: Wed Jun 23, 2021 9:10 am
GT99 wrote: Wed Jun 23, 2021 9:07 am Count me among those who misunderstood this rule. If #2 is the correct answer, is the point of the $15k annual rule just that any amount under $15k in a given year doesn't count against the lifetime giving?
And doesn’t require any paperwork
And does it trigger any taxes for the recipient?
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by lazynovice »

rich126 wrote: Wed Jun 23, 2021 10:27 am
David Jay wrote: Wed Jun 23, 2021 9:10 am
GT99 wrote: Wed Jun 23, 2021 9:07 am Count me among those who misunderstood this rule. If #2 is the correct answer, is the point of the $15k annual rule just that any amount under $15k in a given year doesn't count against the lifetime giving?
And doesn’t require any paperwork
And does it trigger any taxes for the recipient?
No. Not federally. And in no state that I am aware of.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by David Jay »

rich126 wrote: Wed Jun 23, 2021 10:27 am
David Jay wrote: Wed Jun 23, 2021 9:10 am
GT99 wrote: Wed Jun 23, 2021 9:07 am Count me among those who misunderstood this rule. If #2 is the correct answer, is the point of the $15k annual rule just that any amount under $15k in a given year doesn't count against the lifetime giving?
And doesn’t require any paperwork
And does it trigger any taxes for the recipient?
Pretty much no gifts in the US (between two US residents/taxpayers) trigger taxes on the part of the recipient. Taxes, if any, are paid by the giver.

Inherited retirement accounts are different, the IRS still wants their “cut”.
Last edited by David Jay on Wed Jun 23, 2021 11:28 am, edited 2 times in total.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Luke Duke »

If you and the recipient are married you can gift $60K w/o reporting. If they have kids, you (and your spouse) can gift each kid $15K.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by TedSwippet »

David Jay wrote: Wed Jun 23, 2021 10:51 am Taxes, if any, are paid by the giver.
There is at least one exception to this. Section 2801. Almost certain not to apply in this case, but an exception nevertheless.

https://www.law.cornell.edu/uscode/text/26/2801
(a) In general
If, during any calendar year, any United States citizen or resident receives any covered gift or bequest, there is hereby imposed a tax equal to the product of—
(1) the highest rate of tax specified in the table contained in section 2001(c) as in effect on the date of such receipt, and
(2) the value of such covered gift or bequest.

(b) Tax to be paid by recipient
The tax imposed by subsection (a) on any covered gift or bequest shall be paid by the person receiving such gift or bequest.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by David Jay »

TedSwippet wrote: Wed Jun 23, 2021 11:04 am
David Jay wrote: Wed Jun 23, 2021 10:51 am Taxes, if any, are paid by the giver.
There is at least one exception to this. Section 2801. Almost certain not to apply in this case, but an exception nevertheless.

https://www.law.cornell.edu/uscode/text/26/2801
(a) In general
If, during any calendar year, any United States citizen or resident receives any covered gift or bequest, there is hereby imposed a tax equal to the product of—
(1) the highest rate of tax specified in the table contained in section 2001(c) as in effect on the date of such receipt, and
(2) the value of such covered gift or bequest.

(b) Tax to be paid by recipient
The tax imposed by subsection (a) on any covered gift or bequest shall be paid by the person receiving such gift or bequest.
I see you snipped my “pretty much” from the quote. That was put there because there are always exceptions.

“covered Expatriates” is a pretty narrow exception.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by TedSwippet »

David Jay wrote: Wed Jun 23, 2021 11:12 am I see you snipped my “pretty much” from the quote. That was put there because there are always exceptions.

“covered Expatriates” is a pretty narrow exception.
Sorry. Didn't mean to offend or misconstrue your post. It's indeed a narrow exception. Extremely nasty for anyone caught by it, though.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by David Jay »

TedSwippet wrote: Wed Jun 23, 2021 11:16 am
David Jay wrote: Wed Jun 23, 2021 11:12 am I see you snipped my “pretty much” from the quote. That was put there because there are always exceptions.

“covered Expatriates” is a pretty narrow exception.
Sorry. Didn't mean to offend or misconstrue your post. It's indeed a narrow exception. Extremely nasty for anyone caught by it, though.
I didn’t notice your location when I first replied, I see how it may affect your circle of associates…

See my edit in post you originally quoted.
Last edited by David Jay on Wed Jun 23, 2021 12:04 pm, edited 2 times in total.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by alfaspider »

pennywise wrote: Wed Jun 23, 2021 6:39 am
Noobvestor wrote: Tue Jun 22, 2021 9:50 pm In a nutshell: my question is "can I gift someone $100,000 without immediate or near-term tax consequences." *
Yes
From what I understand, there is the annual gift limit of $15,000. But there's also a lifetime limit that is over $10,000,000. I'm never going to hit the latter. The former in this scenario, well, I would obviously go over with $100,000. The person, for context, is not family by blood or marriage. A friend.

So I imagine two possible scenarios: (1) the gift is given, reported, and taxes are paid on it, or (2) the gift is given, reported, and is not taxed in any way, but does reduce future estate tax exemption in the (unlikely) event that when I die I have more than $10MM (in which case: I don't care).

Which of those two is it, or is it something else entirely?
(2)

The mythical 'gift tax' seems to be one of the most incorrectly understood tax policies in the personal finance universe.

I can only surmise this is a holdover from olden days when the estate tax threshold was considerably lower. Or maybe it's the phrase--if there's a "gift tax" boogeyman, then everyone must assume they are gonna get attacked. In some very specific situations there might be a tax consequence but that's a vanishingly small percentage.

So yes, you can throw money at people without either of you paying taxes on it.
The gift tax is an essential backstop to the estate tax. Otherwise, someone can just give away most of their wealth on their deathbed (or otherwise in very old age), such almost nobody would actually pay estate tax. Even with the current high lifetime exemption and estate tax thresholds, the estate tax is still dead letter if one can simply make gifts without declaring them. So it makes sense to require a return for more substantial gifts.

It's also worth noting that starting 2026, the estate tax threshold goes back to $5.5MM (adjusted for inflation, so likely around $6MM). It's still only wealthy taxpayers that get hit, but it will impact a lot more people.

Where the confusion occurs is that people think having to file a gift tax return means having to pay gift tax. It really just means documenting the gift so you can't use gifts to make an end run around inheriting the money later (unless the gift is so large that the giver has used up their exemption).
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by neowiser »

It's also worth noting that starting 2026, the estate tax threshold goes back to $5.5MM (adjusted for inflation, so likely around $6MM). It's still only wealthy taxpayers that get hit, but it will impact a lot more people.
Does the higher exclusion limit get "grandfathered" into your estate tax calculations, or are gifts given today subjected to the lower limit if the giver dies after 2026?
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by adamthesmythe »

It is amazing how persistent the confusion is about "gift taxes."

(Further- it is my opinion that "gifting" as a replacement fir "giving" must be deplored. And that Carthage is a menace to Rome.)
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by HueyLD »

neowiser wrote: Wed Jun 23, 2021 12:59 pm
It's also worth noting that starting 2026, the estate tax threshold goes back to $5.5MM (adjusted for inflation, so likely around $6MM). It's still only wealthy taxpayers that get hit, but it will impact a lot more people.
Does the higher exclusion limit get "grandfathered" into your estate tax calculations, or are gifts given today subjected to the lower limit if the giver dies after 2026?
“ IR-2019-189, November 22, 2019

WASHINGTON — The Treasury Department and the Internal Revenue Service today issued final regulations confirming that individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.”
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by bogcir »

HueyLD wrote: Wed Jun 23, 2021 1:18 pm
neowiser wrote: Wed Jun 23, 2021 12:59 pm
It's also worth noting that starting 2026, the estate tax threshold goes back to $5.5MM (adjusted for inflation, so likely around $6MM). It's still only wealthy taxpayers that get hit, but it will impact a lot more people.
Does the higher exclusion limit get "grandfathered" into your estate tax calculations, or are gifts given today subjected to the lower limit if the giver dies after 2026?
“ IR-2019-189, November 22, 2019

WASHINGTON — The Treasury Department and the Internal Revenue Service today issued final regulations confirming that individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.”
The other notable thing about it is that if your spouse dies before 2026, you can elect to port their unused $11.7M exemption so it’s “locked in”

https://www.cohencpa.com/insights/artic ... -to-spouse
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by neowiser »

HueyLD wrote: Wed Jun 23, 2021 1:18 pm
neowiser wrote: Wed Jun 23, 2021 12:59 pm
It's also worth noting that starting 2026, the estate tax threshold goes back to $5.5MM (adjusted for inflation, so likely around $6MM). It's still only wealthy taxpayers that get hit, but it will impact a lot more people.
Does the higher exclusion limit get "grandfathered" into your estate tax calculations, or are gifts given today subjected to the lower limit if the giver dies after 2026?
“ IR-2019-189, November 22, 2019

WASHINGTON — The Treasury Department and the Internal Revenue Service today issued final regulations confirming that individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.”
Good to know, thank you.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by RyeBourbon »

adamthesmythe wrote: Wed Jun 23, 2021 1:10 pm It is amazing how persistent the confusion is about "gift taxes."

(Further- it is my opinion that "gifting" as a replacement fir "giving" must be deplored. And that Carthage is a menace to Rome.)
gifting delenda est
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by JackoC »

neowiser wrote: Wed Jun 23, 2021 12:59 pm
It's also worth noting that starting 2026, the estate tax threshold goes back to $5.5MM (adjusted for inflation, so likely around $6MM). It's still only wealthy taxpayers that get hit, but it will impact a lot more people.
Does the higher exclusion limit get "grandfathered" into your estate tax calculations, or are gifts given today subjected to the lower limit if the giver dies after 2026?
It's as follows, described via basic scenario's, first ignoring the changing inflation adjustment and just assuming $11mil exclusion now, $5.5mil after 2025 (actually, *starting* in 2026):
-give nothing now, exclusion goes from $11mil to $5.5mil after 2025
-give $5mil now, exclusion goes from $6mil to $0.5mil after 2025
-give $11mil now, exclusion goes to $0 now and remains so after 2025.

IOW, 'use it or lose it' for the 'bottom half' of the current $11mil, you need to gift more than half the current exclusion to avoid the full effect of the reduction after 2025, again neglecting the inflation adjustment. Considering inflation, the relevant adjustment will be the inflation adjusted value at death. So take the middle case, assume no other change in estate tax law ever, and continuing inflation at some rate. At some point in the future the exclusion will adjust back to $11mil nominal. At that time the middle case will come out: give $5mil now, exclusion goes from $6mil (if you die now) to $6mil (if you die long enough from now for the $5.5 mil to be inflation adjusted back to $11mil nominal). The gift is not inflation adjusted in the future calculation.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by cas »

David Jay wrote: Wed Jun 23, 2021 9:10 am
GT99 wrote: Wed Jun 23, 2021 9:07 am Count me among those who misunderstood this rule. If #2 is the correct answer, is the point of the $15k annual rule just that any amount under $15k in a given year doesn't count against the lifetime giving?
And doesn’t require any paperwork
Just to emphasize, by rephrasing:

And doesn't require any paperwork of the sort that you to need to keep for the rest of your life and that whoever settles your estate needs to be able to find easily after your demise.

With the caveat that I've never yet been involved in filling in a Form 706 (estate tax return), here's the relevant sentence that caught my eye in the instructions for Form 706:

Instructions for line 4 and 7
You must have all of the decedent's gift tax returns (Forms 709) before completing Worksheet TG—Taxable Gifts Reconciliation.
More people than you might think may eventually need to have an estate tax return filed for their estate, since that is how one implements portability of any unused estate tax exemption to a surviving spouse.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Lee_WSP »

cas wrote: Thu Jun 24, 2021 10:19 am
David Jay wrote: Wed Jun 23, 2021 9:10 am
GT99 wrote: Wed Jun 23, 2021 9:07 am Count me among those who misunderstood this rule. If #2 is the correct answer, is the point of the $15k annual rule just that any amount under $15k in a given year doesn't count against the lifetime giving?
And doesn’t require any paperwork
Just to emphasize, by rephrasing:

And doesn't require any paperwork of the sort that you to need to keep for the rest of your life and that whoever settles your estate needs to be able to find easily after your demise.

With the caveat that I've never yet been involved in filling in a Form 706 (estate tax return), here's the relevant sentence that caught my eye in the instructions for Form 706:

Instructions for line 4 and 7
You must have all of the decedent's gift tax returns (Forms 709) before completing Worksheet TG—Taxable Gifts Reconciliation.
More people than you might think may eventually need to have an estate tax return filed for their estate, since that is how one implements portability of any unused estate tax exemption to a surviving spouse.
If it's under the annual exclusion, no return is necessary. Period. Just make sure there's no question that it falls within the annual exclusion.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by neowiser »

JackoC wrote: Thu Jun 24, 2021 9:36 am
neowiser wrote: Wed Jun 23, 2021 12:59 pm
It's also worth noting that starting 2026, the estate tax threshold goes back to $5.5MM (adjusted for inflation, so likely around $6MM). It's still only wealthy taxpayers that get hit, but it will impact a lot more people.
Does the higher exclusion limit get "grandfathered" into your estate tax calculations, or are gifts given today subjected to the lower limit if the giver dies after 2026?
It's as follows, described via basic scenario's, first ignoring the changing inflation adjustment and just assuming $11mil exclusion now, $5.5mil after 2025 (actually, *starting* in 2026):
-give nothing now, exclusion goes from $11mil to $5.5mil after 2025
-give $5mil now, exclusion goes from $6mil to $0.5mil after 2025
-give $11mil now, exclusion goes to $0 now and remains so after 2025.


IOW, 'use it or lose it' for the 'bottom half' of the current $11mil, you need to gift more than half the current exclusion to avoid the full effect of the reduction after 2025, again neglecting the inflation adjustment. Considering inflation, the relevant adjustment will be the inflation adjusted value at death. So take the middle case, assume no other change in estate tax law ever, and continuing inflation at some rate. At some point in the future the exclusion will adjust back to $11mil nominal. At that time the middle case will come out: give $5mil now, exclusion goes from $6mil (if you die now) to $6mil (if you die long enough from now for the $5.5 mil to be inflation adjusted back to $11mil nominal). The gift is not inflation adjusted in the future calculation.
Thank you for those examples, I misinterpreted the IRS ruling. So unless you want to give more than ~ $6 M prior to 2026 there’s no advantage to making the gift prior to 2026.
jodhpur
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by jodhpur »

Could a married couple receive 120k of gifts (60k per each parents)...pay no tax and not report it? And not have it go toward the 11m lifetime.
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David Jay
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by David Jay »

jodhpur wrote: Thu Jun 24, 2021 3:22 pm Could a married couple receive 120k of gifts (60k per each parents)...pay no tax and not report it? And not have it go toward the 11m lifetime.
See my comment above:
David Jay wrote: Wed Jun 23, 2021 10:51 amPretty much no gifts in the US (between two US residents/taxpayers) trigger taxes on the part of the recipient. Taxes, if any, are paid by the giver.
So "yes". There is no limit on what one can receive and no reporting requirement for reception if all parties are US residents and US taxpayers.
Last edited by David Jay on Thu Jun 24, 2021 5:09 pm, edited 1 time in total.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Lee_WSP »

David Jay wrote: Thu Jun 24, 2021 3:43 pm
jodhpur wrote: Thu Jun 24, 2021 3:22 pm Could a married couple receive 120k of gifts (60k per each parents)...pay no tax and not report it? And not have it go toward the 11m lifetime.
See my comment above:
David Jay wrote: Wed Jun 23, 2021 10:51 amPretty much no gifts in the US (between two US residents/taxpayers) trigger taxes on the part of the recipient. Taxes, if any, are paid by the giver.
So "yes". There is no limit on what one can receive and no reporting requirement for reception if all parties are US residents and US taxpayers.

What you didn't ask is whether the parents would need to report and whether it would go towards the parent's 11M lifetime. Yes on both counts, they would need to report a $30,000 gift from each parent to each child ($60K total per parent, per your question above) and report the entire $60,000 each on Form 706, counting against their lifetime exclusion.
I believe s/he's suggesting that the parents are gifting 15k each to each half of the marital couple for a total of 2x 2x 15k gifts equaling 60k total per year. Which falls under the current $15k annual exemption per person so long as it is a total of four distinct gifts to two distinct persons from two distinct persons.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by David Jay »

Lee_WSP wrote: Thu Jun 24, 2021 4:10 pm
David Jay wrote: Thu Jun 24, 2021 3:43 pm
jodhpur wrote: Thu Jun 24, 2021 3:22 pm Could a married couple receive 120k of gifts (60k per each parents)...pay no tax and not report it? And not have it go toward the 11m lifetime.
See my comment above:
David Jay wrote: Wed Jun 23, 2021 10:51 amPretty much no gifts in the US (between two US residents/taxpayers) trigger taxes on the part of the recipient. Taxes, if any, are paid by the giver.
So "yes". There is no limit on what one can receive and no reporting requirement for reception if all parties are US residents and US taxpayers.

What you didn't ask is whether the parents would need to report and whether it would go towards the parent's 11M lifetime. Yes on both counts, they would need to report a $30,000 gift from each parent to each child ($60K total per parent, per your question above) and report the entire $60,000 each on Form 706, counting against their lifetime exclusion.
I believe he's suggesting that the parents are gifting 15k each to each half of the marital couple for a total of 2x 2x 15k gifts equaling 60k total per year. Which falls under the current $15k annual exemption per person so long as it is a total of four distinct gifts to two distinct persons from two distinct persons.
So (4) parents - both sides - to get to $120,000? I agree with you if that is the interpretation, I read "60K per".
Last edited by David Jay on Thu Jun 24, 2021 5:07 pm, edited 1 time in total.
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Leesbro63 »

neowiser wrote: Thu Jun 24, 2021 2:58 pm
JackoC wrote: Thu Jun 24, 2021 9:36 am
neowiser wrote: Wed Jun 23, 2021 12:59 pm
It's also worth noting that starting 2026, the estate tax threshold goes back to $5.5MM (adjusted for inflation, so likely around $6MM). It's still only wealthy taxpayers that get hit, but it will impact a lot more people.
Does the higher exclusion limit get "grandfathered" into your estate tax calculations, or are gifts given today subjected to the lower limit if the giver dies after 2026?
It's as follows, described via basic scenario's, first ignoring the changing inflation adjustment and just assuming $11mil exclusion now, $5.5mil after 2025 (actually, *starting* in 2026):
-give nothing now, exclusion goes from $11mil to $5.5mil after 2025
-give $5mil now, exclusion goes from $6mil to $0.5mil after 2025
-give $11mil now, exclusion goes to $0 now and remains so after 2025.


IOW, 'use it or lose it' for the 'bottom half' of the current $11mil, you need to gift more than half the current exclusion to avoid the full effect of the reduction after 2025, again neglecting the inflation adjustment. Considering inflation, the relevant adjustment will be the inflation adjusted value at death. So take the middle case, assume no other change in estate tax law ever, and continuing inflation at some rate. At some point in the future the exclusion will adjust back to $11mil nominal. At that time the middle case will come out: give $5mil now, exclusion goes from $6mil (if you die now) to $6mil (if you die long enough from now for the $5.5 mil to be inflation adjusted back to $11mil nominal). The gift is not inflation adjusted in the future calculation.
Thank you for those examples, I misinterpreted the IRS ruling. So unless you want to give more than ~ $6 M prior to 2026 there’s no advantage to making the gift prior to 2026.
There has been a lot of discussion about this on other threads. It IS very confusing. But a good rule-of-thumb way of understanding this is that you have to be REALLY wealthy to take advantage of gifting now to avoid the lower unified credit later. Being "only moderately wealthy" won't work. In other words, for a married couple, you'd have to gift $22M(ish) now in order to "get something for nothing" later. Gifting, say a "mere $one or $two million" now will still count against the scheduled 2026 unified credit.
Last edited by Leesbro63 on Thu Jun 24, 2021 5:02 pm, edited 1 time in total.
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Lee_WSP
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Re: Explain it Like I'm 5: Tax Consequence of Giving a Non-Relative $100,000 as a Gift

Post by Lee_WSP »

David Jay wrote: Thu Jun 24, 2021 4:18 pm
Lee_WSP wrote: Thu Jun 24, 2021 4:10 pm
David Jay wrote: Thu Jun 24, 2021 3:43 pm
jodhpur wrote: Thu Jun 24, 2021 3:22 pm Could a married couple receive 120k of gifts (60k per each parents)...pay no tax and not report it? And not have it go toward the 11m lifetime.
See my comment above:
David Jay wrote: Wed Jun 23, 2021 10:51 amPretty much no gifts in the US (between two US residents/taxpayers) trigger taxes on the part of the recipient. Taxes, if any, are paid by the giver.
So "yes". There is no limit on what one can receive and no reporting requirement for reception if all parties are US residents and US taxpayers.

What you didn't ask is whether the parents would need to report and whether it would go towards the parent's 11M lifetime. Yes on both counts, they would need to report a $30,000 gift from each parent to each child ($60K total per parent, per your question above) and report the entire $60,000 each on Form 706, counting against their lifetime exclusion.
I believe he's suggesting that the parents are gifting 15k each to each half of the marital couple for a total of 2x 2x 15k gifts equaling 60k total per year. Which falls under the current $15k annual exemption per person so long as it is a total of four distinct gifts to two distinct persons from two distinct persons.
So (4) parents - both sides - to get to $120,000?
Yup. It can get fairly high fairly easily.

*Each grandparent can gift $15k (in trust or to a 529/UTMA account) to each grandchild as well; so that's another $60k per grandchild.
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