How do I avoid or minimize taxes on a one-time $60k gift from my parents?

Question

Mom & dad just completed a refi on their home. They have paid off their bills and are debt free. They want to give me $60k as an early inheritance of sorts. I want to put the money in a money market account and keep it available just in case they need it a few years down the road. Mom wants it out of her name to avoid conflict with siblings just in case she passes unexpectedly. How do I receive this money without it being considered taxable income. After all, it will probably be going back to mom and dad eventually.

Answer 1

Your parents are going into debt to give you money you might give back to them? Something is missing from your question.

However, gifts are not taxable income as others have pointed out. The earnings on the invested gift will be taxable to you.

Answer 2

There is no tax. You may receive any amount as a gift and there is no tax to you, it is not taxable income. The only issue here is whether you Mom will have to pay gift tax. Gift tax is paid by the donor not by the recipient. Your Mom can give you $12K without any tax consequence. If she and your Dad give together then the total is $24K. If they do $24K this year and $24K next year then they're at $48K without tax issues. If they want to do all of it now then they can do so but will use some of their lifetime credit. If they do not expect to have a taxable estate and have not used up their lifetime credits then they can give you the full amount and still not owe any tax. They need to file a Form 709 Gift Tax Return but will just use the available credit without actually needing to write a check to the IRS. In any case you will not owe tax. Your Mom and Dad should consult with a competent estate planning attorney to properly accomplish their goals.

Answer 3

I guess I'm confused about the statement that your parents just completed a refin on their home, but they are debt free. Unless they did a reverse mortgage to pull their equity out of the home, then they do owe the mortgage. Correct? So they are wanting to gift $60k to you & pay mortgage interest on that gift every month. Doesn't seem logical to me. However, if this is the case, they would need to file Form 709 (Gift Tax return) on the Federal level & also, more than likely, a comparable return on the State level.

No tax consequences to you.

Answer 4

Just say, "Thank you." Gifts are never taxable to the recipient. Depending upon how your parents structure the gift THEY may have Gift Tax to pay but the money is tax-free to you.

Answer 5

Your parents get an annual exclusion of $12,000 (it will likely be a little higher for 2007).

If you're married, you can have some of the gift given to your wife and double the exclusion amount. (This only works if your wife keeps the money as her own.)

You can do the same thing with any of your kids, with the same restriction. You're not allowed use of both the exclusion and the money given to someone else. If you have access to it, the exclusion for them goes away.

(You're allowed a lifetime total exclusion of $1 million.)

Answer 6

No one else has pointed this out that I noticed, but I believe your mother can give you $12,000, your father can give you $12,000, then, as someone did mention, your spouse (if any) can also receive gift(s). That would bring the amount to $48,000 that would be free of gift taxes or impact on the estate.

Answer 7

It isn't taxable income to you, but your parents will have to file a gift tax return. They have a lifetime exclusion far more than this, so shouldn't have to pay a gift tax, but they do need to file the return.

Answer 8

Your parents can give you up to 12,000 a year without being tax. If you are given more then 12,000 they would be subject to gift tax. http://www.irs.gov/newsroom/article/0,,id=107815,00.html