How much money can parents gift to adult children tax-free?
June 17, 2018 5:00 PM   Subscribe

The gift in question would be about $100,000 from the proceeds of a house sale. If a parent gives a gift of cash to an adult child, does the adult child pay income tax on it? Is there a special tax rate on such gifts? I don't think inheritance tax would be an issue since the parent's estate is not even close to the inheritance tax threshold.
posted by KatNips to Work & Money (6 answers total) 5 users marked this as a favorite
2018 Gift Tax info.

"The federal gift tax applies to the giver of a gift, not the recipient, for amounts above a specified level."

"For starters, you can give gifts valued up to the annual gift tax exclusion amount each year without ever touching the lifetime exemption. ... In 2018, it increases to $15,000 per recipient."
posted by The Deej at 5:06 PM on June 17, 2018

Here is the link to all of the information at the IRS so you can research it yourself.

I am not an expert but when I looked into it this was my conclusion:
The gift tax is the parent's responsibility not the child's.
There is a unified gift tax/estate tax so the parents have to fill out some paperwork now and this gift counts toward the part of the estate that can get transferred tax free at their death.
posted by metahawk at 5:06 PM on June 17, 2018 [1 favorite]

I am an expert on this (estate tax attorney), but not YOUR expert. That said, knowing you'll probably get a lot of wrong answers I'll answer anyway (metafilter is a terrible place to go for tax advice):

There is no income tax on gifts.

Gift tax is the issue. Each parent can give $15,000 per year to each kid (or kid's spouse or grandkid or dog walker or whomever) without doing or reporting anything.

If the parent gives more than $15k in a particular year to a particular person, a gift tax return must be filed which reports the use of part of the parent's $11.18 million lifetime exemption. You need your accountant or an attorney to file this form - it's not something even a smart lay person who does their own income taxes can fill out themselves. If the parent gave the child $100,000, then $15,000 would use the annual exclusion, and the parent would file a gift tax return reporting the use of $85,000 of lifetime exemption. The parent's lifetime exemption available to use at death (ironic terminology huh?) would be 11,180,000 minus 85,000.
posted by bluesky78987 at 5:28 PM on June 17, 2018 [35 favorites]

I don't think inheritance tax would be an issue since the parent's estate is not even close to the inheritance tax threshold.

You basically file the annual paperwork now just in case, I don't know, Warren Buffett kicks the bucket tomorrow and leaves his entire estate to the parents without them even knowing about it, or they discover a lost Picasso in the attic. Or, slightly more likely than that if not by much, in case the exclusion for the estate tax gets lowered drastically by the time they pass. So yeah, the reason it works how bluesky78987 describes here is because most times with a circumstance like this you know full well you won't owe anything, but you still have to get your ducks in a row just in case. That keeps anybody from needing to track down documentation on this sort of thing decades later.

Definitely agree that you should have someone else do it unless you're super confident about it. It shouldn't be expensive.
posted by Sequence at 5:36 PM on June 17, 2018

If the parents are really fuckin' rich, they should just hire a lawyer to deal with it.

If they're not really fuckin' rich:

*They can give this to the child.

*The child won't pay any taxes on it

*The parents won't pay any taxes on it but will need to file a form about it in case they ever become really fuckin' rich and leave a ginormous estate
posted by GCU Sweet and Full of Grace at 5:57 PM on June 17, 2018 [3 favorites]

(sorry, I failed to note I was trying to act as Speaker to Animals for bluesky)
posted by GCU Sweet and Full of Grace at 5:59 PM on June 17, 2018 [1 favorite]

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