A friend of mine's dad passed away in 2021. His dad did not leave a will. His mom gifted him his dad's former truck. The truck had a book value of $21,000 and he sold the truck for $21,000. Since his mom does not work and had no money, he gave her the $21,000 to pay off the unpaid bills that were left after the father's passing. His mom also gifted him and his younger brother the house. What are the tax consquences for him in 2021? I realize the that $15,000 in annual gifts is not taxable. Thanks in advance.
The recipient of a gift never pays tax**.
The giver is required to file gift tax return form 709 when the person makes a gift of more than $15,000 per person per year. This form is not part of a regular tax return (and Turbotax does not prepare this form) but it is due the same day, April 15. Gift tax is not owed unless the giver's lifetime total gifts are more than $11 million, but form 709 is filed to track a person's gifts agains their lifetime limit.
I would ignore the truck. Essentially, the son sold the truck for his mother. It wasn't really a gift if he gave the mother the proceeds.
The mother gave each son half a house. Assuming the value of the house was more than $15,000, the mother must file form 709 to report the gift. But she won't owe gift tax, and neither will the sons.
(**One of my nitpicking friends may point out that if gift tax is owed and the giver does not pay it, the IRS can collect from the recipient. This is an uncommon situation, and here it seems very unlikely that the mother's lifetime gifts are more than $11 million.)
Thank you sir for the very detailed reply. Just some information: The reason the mom gave her son the truck was because they told her she could not sell it because she didn't have a driver's license. She was a stay at home mom who only went out with her husband. I forget to mention that when the father passed away he still had a balance on his truck loan which was paid off by the credit life insurance he had on the loan. Not sure if this would change anything. Thanks again. Fantastic job!
@fasteddie577 wrote:
Thank you sir for the very detailed reply. Just some information: The reason the mom gave her son the truck was because they told her she could not sell it because she didn't have a driver's license. She was a stay at home mom who only went out with her husband. I forget to mention that when the father passed away he still had a balance on his truck loan which was paid off by the credit life insurance he had on the loan. Not sure if this would change anything. Thanks again. Fantastic job!
If the truck and the cash were truly separate gifts, independent of each other, the mother would include the value of the truck on her form 709 and the son would file a form 709 reporting the gift of cash more than $15,000. But as I indicated and you confirmed, the truck wasn't a gift in the true sense of the word, and can be ignored for gift tax purposes.