2009 Gift Tax Rules and Limits

2009 Gift Tax Rules

Here’s a question I came across regarding the tax rules regarding gifting. For any individual looking to pass on a portion of their estate without incurring any estate tax, this example should be helpful.

My 79 year old mother has a sizeable amount of various stocks and bonds and other investments. Now she wants to start giving me and her grandchildren a cash gift by liquidating her investments. Should she just cash in, sell her investments and give the gift, $13,000 per person per year, to each of us?

Giving a Gift

As you mentioned, your mom can give you and your kids up to $13,000 each for calendar year as of 2009 without taxes or gift tax implications according to the IRS. Keep in mind that her gifts don’t have to be in cash. Seeing as we’re trying to reduce the size of the estate often at a gifting strategy. If they sell their pre-paid assets and give cash gifts, it might benefit all parties. Recipients would receive a gift without any capital gain implications and the givers would further reduce the size of their estate by paying the capital gains tax. When you make lifetime gifts of stock, land, or other securities, you don’t pay capital gains tax, but when a recipient sells those assets, they will pay tax on the difference between when they sell them for and what you originally paid.

Avoid The Tax

But if your mom does not want to incur any capital gains tax, she can just gift you the investments and let you deal with it. Either way, it’s a win-win situation for both. She lowers her tax bill and you receive an inheritance. The size of her estate will dictate if there is a need of more elaborate estate planning.

Splitting a Gift

One other thing to keep in mind is that since it’s only your mom, she can only gift $13,000 per person. If both your parents were alive, they each could gift the $13,000 to each individual meaning that one recipient could receive $26,000 without violating the gift tax rule. This is sometimes referred to as “gift splitting”.

A Good Example

Your mom is a great example of how funds actually can contribute a comfortable retirement and help create financial security for future generations. Make sure her money goes as far as it possibly can. It can be tricky business, however. So, consult a tax advisor if you have further questions.

by acd111

Please consult your tax advisor prior to taking any action.

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