A family member intends on gifting us a sum of $70,000 towards the purchase of a new home. My question is - will that family member owe any gift tax on it? I have been reading sources that appear conflicting. Basically, the $70,000 is way under the $5.25 Million lifetime exception, but is over the $14,000 annual gift exclusion. Finally, are there any tax consequences for me, as the recipient?
Thanks for looking.
Edit: The yearly exemption limit is now $15,000
No tax consequences to you.
Tax consequences to your sister. From your comment:
My sister is single, but my wife and I have a son. So we can avail $14000 x3 = $42000 without the need to report it. The remainder ($70000-$42000) = $28000 will be reported against the lifetime exclusion by my sister on her return. Per my understanding, the $28000 is also not subject to any gift tax
It is subject to gift tax, and she must submit gift tax return (form 709) to the IRS. On that return she can choose to apply part of the lifetime exemption and reduce the lifetime limit, or pay the tax and keep the lifetime limit. If she applies the exemption, she needs to keep track of it, so that it could be properly applied next time, or when she passes away.
The lifetime exemption is in fact intended for the estate tax. But people can chose and apply it to gifts during lifetime and reduce the exemption for estate. This is something of consequence to take into account.
Yearly $14K cap is not related to the lifetime exemption and is for gifts per donor per donee. Breaking the gift into several occasions over several years helps reducing the tax burden on the donor without touching the lifetime exclusion and affecting the estate tax. But if you don't have the time...
To answer the last question first: there are no tax consequences to you.
If your family member is married (or has a joint owner of the funds), and so are you, each of them can give each of you the $14K annual gift, which would be $56K. The remainder of the $70K would be subject to either (1) Gift Tax for the tax year in which it was given, or (2) applied to the lifetime exclusion. Either way would require filing a form with the IRS.
When you apply for the mortgage expect that the lender will want your sister to sign a form explaining that that is a gift, otherwise the lender might be concerned that it is a loan.
Be careful about the gifting of the money to a minor. You could run into an issue if the money isn't spent on something that benefits the child. The IRS does get concerned about using money transfers between child and parent to get around tax issues.
Other than that you don't have a tax issue. If the gifting is done correctly your sister can gift $14,000 to you and your spouse each year.
If your child has a large expenses in the near future: tuition, braces... Your sister could transfer funds to the child to pay for those items, thus freeing up some of your funds for the house.
