We may be on a home remodelling show. Will we have to pay gift tax?

Question

Our family may be appearing on a kitchen remodelling show in the near future. Are we going to have to pay a gift tax on the portion of the remodelling we do not contribute financially to? For example, we contribute $5,000 towards a kitchen, and the TV network creates a kitchen worth $20,000. Will we owe taxes on the difference?

If it is claimed as income, is it claimed at the same percentage as my fulltime job?

Answer 1

First of all, ignore the "rent" answer entirely....way off the mark.

Second, the recipient of a gift NEVER pays tax on the gift for federal income tax purposes. Allow me to repeat...NEVER! If Bill Gates gave you a billion dollars, you would owe the IRS zero dollars and zero cents income tax. Your state may be different.

So, you are probably thinking why people who were given cars on the Oprah Winfrey show had to pay tax. It is because they officially "won" the car. They were not given cars, they won cars. I am not very well versed on when exactly something is given or won, but I bet it has something to do with General Motors or someone who wanted to write-off the cost of the cars instead of eating them. You see, sometimes the giver of a gift pays a tax even if the recipient does not. If Bill Gates gave you $1 billion, he would end up paying an additional amount (nearly $500 million) in gift taxes to the IRS. This is different than income tax and has something to do with estate tax. Only the payer pays a gift tax (when the gift is excessive)*. The recipient of a gift never pays any federal tax. So, maybe to avoid a gift tax, or maybe to be able to write off the cars, they called them all prizes and not gifts.

Therefore, ask the show if the kitchen improvements are a gift or a prize. Believe me, the show knows more about this than I or anyone else on this board does. They've answered your question a million times before for other people.

Finally, if it turns out that you have to claim the "winnings", it is added to your income just as if you made that much in interest. Exactly what rate you will pay on that amount depends on how much other taxable income you have. If you are in the 25% marginal tax bracket already, then you will pay 25% of the winnings in federal income taxes. Of course, if the winnings cause your new, total, taxable income to go over into the next tax bracket, then the amount of winnings to get you to the threshold will be taxed at your marginal tax rate (25%) and the remainder will be taxed at your new tax rate (33%).

OK?

* Anytime someone gives more than $12,000 ($11,000 for 2005 and earlier) to a single person, they have to file a gift tax return. It is only after that person gives more than $1 million total to all recipients do they start to owe taxes. Therefore, if you gave me $12,000, you would not have to fill out any extra forms. If you gave me $13,000, even though you would have to file a gift tax return showing a gift of $1,000 ($13,000 - $12,000), you would owe nothing. Once your gift tax return lifetime total exceeded $1 million will you start to pay tax on your gifts. Of course, gifts to charitable organization are exempt from gift tax.

Answer 2

Gift taxes are never paid by the recipient. The difference between what you pay for the new kitchen and the value of the improvements is taxable as ordinary income. This is treated the same as income from your job for tax purposes. NOTE: The value of the improvements will increase your tax basis in the home. That could reduce your capital gain when you sell the home. If you are not eligible to exclude the gain, that will reduce your capital gains tax.

Answer 3

First, the recipient of a contemporary in no way has to pay tax on it. Now, a individual can present as much as $a million million of their lifetime in the previous having to pay tax. Gifting extra suitable than $13K pa means that the guy giving the money has to end a contemporary tax form, even although there is not any tax to be paid. presents of $13K or much less do not count selection against the cut back and don't ought to be disclosed. So, your mom might supply you $13K and supply your spouse $13K this year without it even having to be disclosed. she will do a similar lower back next year.

Answer 4

By the rules of the IRS ANYTHING that you receive from ANYONE is supposed to be claimed as income. But the only thing the IRS can track is what is sent to you by means of a W-2, 1099, Interest Income, Dividends, gambling gains, stocks and bonds that is reported to them by those companies, bank, businesses or individuals. The TV show should be able to tell you before, how they will report this income to the IRS. Cause you know they will take it as a deduction as an expense of doing the show.

Answer 5

Probably regular income tax. Recipient does not pay gift tax, but what you ask about is not a gift, but contract revenues.