Ask the Expert: What are the tax consequences of financial gifts?
In 2021, my spouse and I gave our daughter $160,000 to help her purchase an apartment. Do we report the full amount and pay the gift taxes on our 2021 return? Does this gift affect our 2021 income for Medicare premiums?
Gifts are reported on a gift tax return, not an income tax return. You must each file a 2021 gift tax return on Form 709. But no gift tax will be due. And the gift won’t affect your Medicare premiums.
Gift and estate taxes are levied on assets that you transfer to any person except for your spouse. (Transfers between spouses are tax-free.) These taxes are paid by the donor, or if he’s deceased, by his estate. But there are very generous exemptions:
In 2021, each taxpayer could give up to $15,000 to an unlimited number of people without incurring federal gift tax or having to file a gift tax return. And on top of that annual exclusion, each taxpayer could also transfer up $11.7 million tax free during his or her lifetime. (In 2022, the annual exclusion is $16,000 and the lifetime exemption is $12.06 million per individual, minus whatever was used in earlier years.)
"If the $160,000 came from a joint account, you should each report an $80,000 gift," says Alan E. Weiner, a Plainview tax accountant. "The amount over the $15,000 limit will reduce your $11.7 million lifetime exemptions. As a result, no tax will be paid."
If the $160,000 came from an account in one parent's name, that parent must show a $160,000 gift on Form 709. "But a couple can choose to split the gift," says Weiner. "The other parent can then report the other $80,000. The result is the same."
The bottom line
Current tax law provides generous annual and lifetime gift tax exemptions.
More information
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