Sep 05, 2010

Annual Gifts: Yes You Can!

gift tax check.jpgLiza: My mom wants to gift me with a $15,000 check before the end of the year but my husband says that will violate the gift tax rules. I thought the limit was $1 million. What's the rule and who pays the gift tax? You have a very nice Mom. I'm sure your husband is very nice, also, but he's got it wrong. To quote our fearless leader, "Yes, she can!" But she should write that check for $13,000. Here's why. You are totally correct that current tax law allows people to make lifetime gifts up $1 million before they have to pay gift tax. Think of that like a Jamba Juice card, each gift you make gets reported on a 709 gift tax return, and that uses up some of the credit (like buying a smoothie with a $30 card, leaving you with $25 and change left for the next time.) But, your mother and everyone else, is also allowed to make annual gifts of up to $13,000 per person per year, free of the gift tax. (This number is adjusted for inflation now and then.) How cool is that? As long as your mother doesn't give more than $13,000 to any one person, she can give $13,000 to everyone in Cleveland if she wants to, without having to pay a penny in gift tax AND without using up even $1 of that lifetime million dollar gift credit. But $15,000 is over that limit, so unless she wants to give you $13,000 and your nice, but misguided, husband $2,000, she'd have to report it and use up some of her lifetime credit.