Tax Tips Blog

Mike writes:
My wife and I are trying to help our youngest daughter - a single mom - get her own house close to us so we can help with after school care, etc. Advise is needed on gifting, gift splitting, and the best way to handle all this without my daughter having to pay taxes on the money and property we are giving her for this house. Thank you. Mike

My reply:
Hello Mike!

You are allowed to gift your daughter up to $12,000 per year without any current year (and possibly never) tax consequences of the gift. In addition you are allowed to gift your grandchild $12,000 per year without any current year (and possibly never) tax consequences of the gift. If you are married your wife is allowed to do the same thing. This would amount to a total of $48,000 per year in gifts.

You can certainly purchase a second home, keep the home in your name and let your daughter and granddaughter live in it. Depending on your income bracket and the amount of the loan, if any, you may be able to deduct the property taxes and mortgage interest you pay on this second home.

You could also purchase the home and rent it to your daughter. You would have to rent it at FMV and you would have to report any income you receive from the rental, but then you can deduct the property taxes, mortgage interest, utilities, any repairs and depreciation on the second home, which you pay for. And you could gift her the money (as explained above) to help her pay for the rent.

Best wishes,
Gina

Ray wonders: If I “gift” some shares of a mutual fund via a broker to broker transfer is this a taxable event (regular or AMT) for me?

My reply:Hello Ray! Since you have the word gift in quotes and you did not provide me with any more information, I will assume that you are speaking of a plain old-fashioned, “Here, I want you to have this” gift; however, if it’s something else, then the correct answer to your question may get more complicated.

If it is a true gift, then it is not taxable for Federal or AMT purposes; however it may be subject to gift tax if the value of the gift is more than $12,000. Please make sure that if you make the gift, the recipient gets a separate letter from you detailing the cost basis and purchase dates of the shares transferred.

Best wishes, Gina www.GLGcpa.com

Doug would like to know:My mom wants to transfer some her stock to me as a gift (generous mom ). There is a 43% capital gains increase since she purchased the shares. If she transferred the stock directly to me, who pays the tax on the capital gains? Should I have her sell the stock and just give me the proceeds?

My reply: Thanks for visiting Doug!

If your mother gives you her stock, then her basis in the stock (whatever that is) and her holding period (whatever that is) becomes your basis and holding period in the stock, and you pay the tax on the capital gains whenever you sell it. If your mother sells the stock, she will pays the capital gains tax on the sale. Then she can give you the net proceeds and it has no affect on your taxes. You should take into consideration a couple of other things:

1. Your tax bracket vs. your mother’s tax bracket
2. The value of the stock

You and your mother may be in different tax brackets. If one of you happens to be in the 15% or below tax bracket, then that person would pay long term capital gains at a 5% rate vs. 15% for others. If your mother is gifting you stock or cash worth more than $12,000, then she is going to have to file a gift tax return. Most likely she will not have to pay any tax on this (unless she has already gifted millions of dollars in the past), but she will still have to file the gift tax return. You will have no reporting or tax paying obligations from this gift. If this is the case then you should also consider splitting the gift between 2006 and 2007. For example, if the stock is worth $15,000, she could give you $12,000 worth of the stock in 2006 and the other $3,000 worth of stock in 2007 and not have to file a gift tax return. On another note, if your mother decides to will you the stock, then your basis would be the fair market value of the stock on the date of her death.