31 Aug If my parents give me money for a house, will it be taxed?

Q. If my parents want to gift my husband and me $150,000 for a down payment on a house, does this mean $64,000 of it would meet their annual gift tax exclusion, and then the remaining $86,000 would “debit” from their lifetime gifting of $12.06 million, and none of the $150,000 would be taxed? Some people have told me some of the money would be taxed.
— Buyer-to-be

A. We’re glad you’re not just listening to “some people.”

Gift tax rules can be confusing, but in your situation, we have good news.

A $150,000 gift by your parents to you and your husband would need to be reported to the Internal Revenue Service by your parents on separate Forms 709, United States Gift (and Generation-Skipping Transfer) Tax Returns, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

However, she said, until your parents exceed each of their present $12.06 million gift and estate tax exemptions, there would be no gift tax.

The Form 709 is due by April 15 of the year following the gift or before the filing of the gift giver’s income tax return if on extension, she said. Unlike a joint income tax return, there is no “joint” Form 709, although spouses may consent to the other spouse using his or her exemption, she said.

Everyone is permitted to give up to $16,000 per year to as many other individuals as the donor chooses without reporting the gift to the Internal Revenue Service, Romania said.

“It must be a gift of a ‘present interest,’ which means it allows the individual the immediate right to the use or enjoyment of the property and is not a gift of a future interest,” Romania said. “If more than $16,000 is given, then the Form 709 is filed, and on the appropriate line the $16,000 is subtracted from the total gifts.”

Although the transfer itself is not taxed, if the gift amount is invested and the investment earns income or if the property which was gifted is later sold, such investment income or gain on sale may incur income tax, she said.

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This story was originally published on Aug. 30, 2022.

NJMoneyHelp.com 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.