Gift exemption

Forum|Forum|3 years ago
February 17, 2023
2 replies
20 views

we file jointly. we plan to give a gift to our daughter in a large sum but over 3-5 years. We are taking a distribution from a IRA so we take a gift amount and add in additional amount to cover taxes. What I want to know is whether or not i am required to file form 709. Since we are spacing out the amount over time and not exceeding joint allowance which for 2022 is 32000, I am of the opinion that I dont need to file the form despite taking more money out to cover the taxes. Say for example, the gift was 25K but we took another 15K as part of the IRA Distribution for a total distribution of $40K. Only 25K of that amount was the gift we gave this past year.

I do know that if I had exceeded the 32K on a joint basis, I would need to file it. However in this case our gift portion is less than the exclusion even though we had to add to our distribution to cover taxes.

MaryK4

Level 15

You must file a gift tax return to split gifts with your spouse (regardless of their amount). If you elect to gift splitting with your spouse, each individual is responsible to file a Form 709. (Spouses may not file a joint gift tax return.)

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Rick9464Author

Level 3

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.

fanfare

Level 15

the amount of your gift has no relation to the amount you take out of your 401k, for tax purposes or other wise.

I hope this is easily seen.

@Rick9464

Opus 17

Level 15

The amount of the gift is what is actually given. The source of the money is not relevant, and if you withdrew extra money from the IRA for any purpose, that also doesn't matter. Just what you actually gave.