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21norman02
Level 3

Is an excess gift amount taxable if the gift is expected to be paid back...even at death?

 
4 Replies
Opus 17
Level 15

Is an excess gift amount taxable if the gift is expected to be paid back...even at death?

Under the law, a “gift” is a free exchange with no expectation of reward and no expectation of payback. There is no such thing as an excess gift. If someone gives you something, it is yours forever.

 

If there are strings attached, or rules or payback requirements, then it is not a gift. It might be a contract in which you receive money after making a promise to do something in exchange, or it might be a loan, but it is not a gift.

 

This is not an income tax question because gifts are never taxable income. If you have additional questions, you may need to see an attorney in your local area.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
21norman02
Level 3

Is an excess gift amount taxable if the gift is expected to be paid back...even at death?

By excess, I mean more than the allowed $15K.  If there is an expectation at the time of the gift that it will be repaid, e.g. upon death per will, or promissory note...would amounts above the $15K limit be exempt?

Opus 17
Level 15

Is an excess gift amount taxable if the gift is expected to be paid back...even at death?


@21norman02 wrote:

By excess, I mean more than the allowed $15K.  If there is an expectation at the time of the gift that it will be repaid, e.g. upon death per will, or promissory note...would amounts above the $15K limit be exempt?


A gift does not have strings.  If the "gift" has strings attached, it is not a proper gift.  A promissory note is not a gift, it is a loan.  You may need legal or tax advice.  

 

For example, suppose you provide your parent $50,000 to renovate their home, so they are not forced to sell it, on condition that you would get that $50,000 back off the top of the estate, before the rest of the estate is divided by the heirs.  That's not a gift, it's a loan.  You don't report it on form 709.  Instead, you will run into the IRS rules on interest-free loans and imputed interest.  This means that the IRS expects you to conduct business in a businesslike manner, and that means charging interest on loans.  If you give someone an interest-free loan, you are required to report income equal to the interest you would have received if you charged interest at the applicable federal minimum rate and pay tax on that imputed or imaginary interest income.   (The minimum federal rate is variable, depends on the type of loan, but is around 1-3% APR.)

 

 

 

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
tagteam
Level 15

Is an excess gift amount taxable if the gift is expected to be paid back...even at death?

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