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Ask the taxgirl: Reporting Gifts

December 28, 2010 · 7 comments

Taxpayer asks:

Hello Tax Girl:

I am in NY.
My father is giving me approximately $25-$30k this year.
He will be reporting the payment to the government by sending me a 1099.
My question is:
Are there any special provisions to keep in mind when I report this on my income tax form or do I just report this as misc income?

Thanks,

taxgirl says:

I think you and your father might be confusing a couple of concepts. Let me see if I can straighten it out for you both.

Assuming that your father is giving you $25-30k as a gift, there are no immediate income tax consequences to you. You need not report the receipt of the gift at all on your income tax return. If the gift is something other than cash (or cash equivalent), you would need to find out the basis of the gift since gifts are subject to “carry over” basis – this means you would use your father’s basis in the gift to figure any gain when you dispose of the gift. For more information on basis, check out my prior post.

When your father makes the gift to you, he would not report it via a form 1099. Since there are no income tax consequences as a result of the gift, there’s no need to reference it on any income tax related forms. He would, however, likely want to report the gift for gift tax purposes on a federal gift tax return, federal form 709 (downloads as a pdf). Each person is allowed to make up to $13,000 in gifts per year to as many people as he or she likes without any gift tax consequences. Your father can gift you $13,000 without gift tax consequences or he could gift 10 people $13,000 without gift tax consequences – the limit is per recipient, not per donor.

There are some techniques which allow you to gift more money more quickly, such as splitting gifts, gifting over time and taking valuation discounts, depending on the nature of the gift, but your father would want to consult with his estate planning attorney or tax professional to find out more.

Like any good lawyer, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! – On twitter at http://www.twitter.com/taxgirl and on Facebook at http://www.facebook.com/taxgirl

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{ 6 comments… read them below or add one }

1 Thomas December 28, 2010 at 12:56 pm

Any chance the father has a business and is trying to report this as a deductible payment to the daughter? If this is her only income and if he’s in a high income tax bracket then maybe he’s better served paying the daughter for services rendered to the business than reporting the gift. That is of course only if there were services rendered and this is reasonable compensation, which really isn’t brought up in the question.

2 Jimmy Pete December 28, 2010 at 2:36 pm

Don’t forget, he still can still give a gift greater than $13k, just so long as he uses the Unified Credit to offset the excess amount. This might be a useful way to avoid paying 35% on the excess gift so long as the father’s estate won’t net over $5M.

3 Kelly December 28, 2010 at 3:27 pm

Thomas, there’s a lot we don’t know from the question. I was relying on the word “giving” and the fact that there was no mention of services. But who knows?

4 Rich December 29, 2010 at 3:27 am

Also, if the father files a joint tax return the max amount he (and spouse) can give to each individual is doubled to 26k.

5 Evan December 30, 2010 at 11:32 am

Adding to Rich (and the general conversation) if Daughter is married then Dad can give $26K to Daughter and Son in Law

6 Thomas December 30, 2010 at 12:30 pm

@Evan – Dad can give 13k to daughter without tapping into his lifetime gift tax exemption. If daughter is married he can give the spouse 13k as well. If dad is married then Mom and Dad can each give 13k without touching their lifetime exemptions, etc… as Taxgirl put it, it’s a recipient defined exemption (though the $1M ($5M next year) gift tax lifetime exclusion is a donor based limitation). After the exclusion is used up the donor pays the gift tax.

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