How the gift tax exemption works

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Q. Last year, I discounted the selling price of my house by $65,000 as an early wedding gift to my daughter and her husband. Under IRS gift tax rules, $14,000 of that to each of them is exempt from my taxes. Can I apply the remaining gifted balance against the federal lifetime gift cap?
— Mother-in-law

A. Gift tax rules can be confusing.

For 2017, the federal estate and gift tax exemption is $5.49 million per individual, up from $5.45 million in 2016.

That means an individual can leave $5.49 million to heirs and pay no federal estate tax or gift tax, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown. A married couple will be able to shield $10.98 million from federal estate and gift taxes.

The annual gift exclusion remains at $14,000 for 2017.

“This means you can give away $14,000 per year to anyone without touching your $5.49 million lifetime exclusion. The $14,000 exclusion is per person, not total, per year, Kiely said.

You sold real estate to your daughter and future son-in-law for a price that is $65,000 below fair market value.

“In the eyes of the IRS that is a gift,” Kiely said. “The first $14,000 gift to your daughter is protected by the annual exclusion and $14,000 given to your future son-in-law is also protected by the annual exclusion.”

The remaining $37,000 ($65,000 – $28,000) will come out of your lifetime exemption, he said.

You report the $37,000 gift on form 709 “United States Gift (and Generation Skipping Transfer Tax Return.”

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This post was initially published in April 2017. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.