A friend of mine is going to buy a house, in my name, for me. The home is $400,000. This is not a loan. So who claims it on their taxes. Do I file it as income or does she tell the IRS she is giving me the money as a gift and I have to pay gift tax? Or does she pay the gift tax? I am very confused and do not know what to do. Please help!
2007-09-01 03:15:32 · 6 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
Person who receives the gift (of any amount) does not pay the gift tax. Only the donor has to pay gift tax.
All gifts of more than annual exclusion amount ($12000) must be reported. There is a lifetime exclusion of $1 million.
A person making a gift in excess of $12K must file Form 706 to document the gift.
2007-09-01 03:31:14 · answer #1 · answered by MukatA 6 · 0⤊ 1⤋
Your friend will have to file a Gift Tax Return, IRS Form 709 showing a $400,000 gift. It doesn't matter if she buys the house and gives it to you or gives you money and you buy the house. If she has not given any taxable gifts in the past, the tax will be zero. If she needs some more friends, please email me from this forum.
2007-09-01 10:26:26 · answer #2 · answered by Anonymous · 0⤊ 0⤋
You do not pay any tax on the receipt of a gift no matter how large. Gifts are specifically excluded as income under Section 102 of the Internal Revenue Code. Section 102(a) says 'Gross income does not include the value of property acquired by gift'
The person who makes the gift (the donor or giver) will need to file a gift tax return. The gift tax return is IRS form 709.
The actual amount of tax owed will depend on several factors. First, a gift for an amount under the annual exclusion is not taxable and does not need to be reported. The exclusion is found in Internal Revenue Code Section 2503 and is currently at $12,000 per person per year. That is you may give up to $12K per year to as many people as you like and not pay gift tax. It can be $12K to one person or $12K each to dozens of different people.
The Gift Tax is imposed under Internal Revenue Code Section 2501 and the tax rate is determined under Section 2502. The current rate is 45% of the taxable gift. In your case the tentative tax would be 45% of ($400K minus the $12K exclusion) or a total tentative tax of $174,600.
This tentative tax amount however may not actually need to be paid. In addition to the annual exclusion there is also a lifetime credit. The credit is established in Section 2505 of the Internal Revenue Code and is currently at $1Million. This million dollar credit is for lifetime gifts. If the total taxable gifts during the life of the donor are less than this one million then the Form 709 must be filed but no tax will need to be paid.
There is one caveat here. If the lifetime gift credit is used then the computation of estate tax at death will effectively reduce the amount sheltered from estate tax. Currently the amount which is sheltered from estate tax is $2Million but the total estate tax owed is altered by use of gift credits during the decedents lifetime. This will not effect gift tax payable now but will become an issue if an estate tax return is filed for the donor. The estate tax return is filed on IRS form 706.
The short answer here then is that you will absolutely no tax for receiving the gift but the donor may either owe gift tax or use up credits and will certainly need to file form 709.
One other note, you will receive the donor's basis in the property. When you sell you will have realized capital gain for any amount over the original $400K even though you didn't pay that amount. In addition, if it is your primary residence for at least 2 of the 5 years prior to your sale then you will qualify for exclusion of capital gain subject to the limitations of Internal Revenue Code Section 121.
2007-09-02 10:26:40 · answer #3 · answered by MICon 2 · 0⤊ 0⤋
Hey, that's some friend, to give you almost half a million dollars!!
She will have to file a gift tax return, and if any taxes are due, she'll be responsible for paying them. You won't pay any tax on the gift, and don't have to report it anywhere.
2007-09-01 18:08:15 · answer #4 · answered by Judy 7 · 0⤊ 0⤋
Nothing complicated about this at all. If it is a bona-fide gift, you will pay no tax on it at all. Your friend will need to file a Gift Tax return and may or may not have any gift tax to pay depending upon their lifetime giving history.
2007-09-01 10:25:12 · answer #5 · answered by Bostonian In MO 7 · 0⤊ 0⤋
It would be considered a gift and you would have to pay the gift tax. You can only give someone $10,000 a yr as a gift that is non taxable. And gift tax is very high taxes. You might want to talk to a lawyer or an accountant and find a better way for them to provide you with a house.
2007-09-01 10:27:00 · answer #6 · answered by shanla 4 · 0⤊ 4⤋