Gift tax is a federal tax...
Your father-in-law is entitled to an $11,000 gift tax exclusion PER DONEE (meaning that he can gift $11k to your husband, to you, to each of your husband's siblings, and to each of their spouses, without having to report it). Therefore, if each of your husband's siblings are married, he can exclude $66,000 ($11k to 6 people).
Your father-in-law will pay taxes on the gift. YOU will only have to pay taxes on it if your FIL does not. See exerpt from Instructions for Form 709, under "who must file":
"The donor is responsible for paying the gift tax. However, if the donor does not pay the tax, the person receiving the gift may have to pay the tax."
There is a tax table to determine the amount of tax to be paid. Let's go through an example...Your FIL is gifting $105k to each of his 3 children, for total gifts of $315,000. Let's assume for purposes of this calculation that all of the children are married.
Each person would receive $52,500, and would be listed separately on Form 709, Schedule A, Part 1), as below:
Child 1, gift of cash - $52,500
Spouse 1, gift of cash - $52,500
Child 2, gift of cash - $52,500
Spouse 2, gift of cash - $52,500
Child 3, gift of cash - $52,500
Spouse 3, gift of cash - $52,500
Total of all gifts given- $315,000 (to Schedule A, Part 3, Line 1)
Schedule A, Part 3:
Total Gifts of Donor - $315,000
Total Annual Exclusions - $66,000 ($11,000 times 6 people)
Taxable Gifts - $249,000
Tax computed on $249,000 is $70,480 ($38,800 tax on gifts to $150,000, and 32% tax on $99,000 (gifts over $150k but less than $250k)...there is a tax table in the instructions that shows you how to compute the tax)
Tax paid depends on whether or not your FIL has had to file a gift tax return before. There is a $345,800 Maximum Unified Credit. Per the instructions, "If you are a citizen or resident of the United States, you must take any available unified credit against the gift tax." You must subtract out any amount of the unified credit that you have used in prior tax years (unified credit is the lesser of your computed gift tax or the maximum unified credit of $345,800). The remaining unified credit is applied against your gift tax (computed in schedule a, part 3).
I will go through 3 examples of the tax that he COULD owe (this is NOT a statement of what he WILL owe):
1. Let's assume that this is the first time your FIL has had to file a gift tax return, and thus has the entire unified credit available to him. $70,480 is less than $345,800 - therefore, his unified credit to be applied against the gift tax is $70,480, which is the same as the gift tax, and he will owe nothing.
2. Let's assume that over the course of his lifetime, your FIL has used $300,000 of the maximum unified credit. This means that your FIL's remaining unified credit is $45,800 ($345,800 max less $300,000 used in prior tax years). The gift tax of $70,480 is more than his remaining credit of $45,800 - therefore, the remaining credit will be applied against the gift tax, and he will owe $24,680.
3. Let's assume that over the course of his lifetime, your FIL has used the ENTIRE $345,800 unified credit. This means that he has no remaining unified credit to apply against the gift tax, and he will owe the FULL $70,480.
As for ways to avoid paying the gift tax, the only thing I can think of that might possibly make it possible would be for your FIL to gift out no more than $11,000 to each person each year for 5 years until the full $52,500 per person has been gifted out. Although again, this does not take any capital gains from the home sale into account.
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PLEASE note, that this is a simplifed example. Not only am I assuming that all 3 children are married, I am also assuming that he has no generation-skipping transfer taxes, that he is giving you cash, and that HE is not married (divorced/widowed). Also, I have NOT addressed that fact that, as the money would be coming from a home sale, that there very well may be capital gains taxes from the home sale due, as well.
I STRONGLY recommend that your Father-in-Law sees a tax accountant BEFORE going through with this.
Hope I didn't confuse you too much!
-Christina
Edit: You can view the 2002 form 709 and its instructions at these 2 sites (copy and paste without the ):
Form: [url]http://www.irs.gov/pub/irs-pdf/f709.pdf
Instructions:
http://www.irs.gov/pub/irs-pdf/i709.pdf
