Thank you Mary for your response. Let me be more specific on the situation so you can help clarify.
1. Wifes intention was to assist her daughter and future son in law in buying a house by using money from her 401K. Husband has a brokerage line of credit against his account which allows her to spread out the necessary amount for the gift. Lets say its 100K and the plan is to pay down the debt over 5 years.
2. Paid 28.5K Principal and Interest (which would be the total gift amount in my mind) , $11.5 Fed taxes and $2800 in state taxes on the 28.5. So the total distribution from 401K was just over 41K.
3. '22 gift exclusion limit is $16k/person. So she gave her daughter and future son in law each a estimated gift of $14250 (under the $16K limit). Per tax tip on "tax guidelines about gifting" on 12/1/22 in Turbotax, it states the law allows you to make an unlimited number of tax-free gifts as long as no one receives more than the $16K limit.
So because she gifted to each of them a gift under 16K in principal and interest, we dont think it is required that a form 709 is necessary. DO YOU AGREE?
We also dont think the Federal and state taxes paid to give that gift amount is part of the gift but rather the taxes we must pay on the distribution. Only the principal and interest paid in '22, we believe is the actual gift amount we are working with. DO YOU AGREE?
Hope this clarifies my question and what I think our responsibility is for 2022. Please let us know your opinion.
