Tax: Can you give over $10K tax-free to someone if you give the amount over $10K in the form of investments?

Question

I'm operating under the assumption that you can only give $10K tax-free per year. Please also tell me if my assumption is wrong. Sorry for the stupid question, but I'm not a tax lawyer.

Answer 1

The annual gift is $11000 per person currently (this changes every few years). You also have a lifetime exemption (currently $1 million) The form does not matter (cash v investment).

The giver must pay the tax. Your cost basis is transferred to the donee at the time of transfer (this means if they sell they realize gain or loss at the time of sale.) If you give cash the basis it the dollar amount transferred. If you give investments the basis is the amount YOU paid for the investment.

Answer 2

Okay, first of all, gifts are not generally taxable to the recipient.

When one donor gives over the exclusion to one donee, then a Gift Return needs to be filed. The donor's taxable estate exclusion is reduced by the amount of overage, so their estate pays more taxes when they ultimately die.

Now, you have some tricky points on investments. Say you bought a house a long time ago for $10,000, and now it's worth $250,000, and you gift it to someone. You're gifting the value of your basis, which is cost less depreciation, basically, so yes, you can do that, but.... when the recipient sells it for $250,000, he takes a capital gain on the price less basis. That may not be a good idea.

See a tax lawyer.