Property purchase/gift tax

[Cooper@1960]

I'm in Ohio

Both my kids were married in 2023 and I would like to purchase each of them property to build homes on. Ohio doesn't have a gift tax but I know there's a federal gift tax for over $17k so that's what my questions are about. This would be cash purchase from me to the seller or a cash gift from me to my children for them to make the purchase.

The properties would never be titled in my name. Or should they be and then transferred from me to the kids? Does either option offer any tax savings?

I've heard if a parent transfers assets to a child then becomes financially insolvent after a few years the government can go after those transferred assets. Is that true? Even a cash gift? If so how many years before the gift is safe? I'm not worried about that scenario but want the info.

Since my kids have spouces and I make the money/property gift to the couple does that mean the gift tax doesn't kick in until $34k per couple?

Thank you.

 

[Zigner]

The $17k/34k limit is not a gift tax limit, it is simply a reporting threshold.

 

[Cooper@1960]

The $17k/34k limit is not a gift tax limit, it is simply a reporting threshold.

Yes, that's what I meant, poor wording on my part, sorry.

 

[Taxing Matters]

The tax law for the gift tax in 2024 is that you may give gifts over the entire year that total $18,000 to each person without it having gift tax effect. That means you may give a total of $18,000 in gifts this year to each of to Kid A, Kid A's spouse, Kid B, and Kid B's spouse for a total amount of $72,000 without the need to file a gift return or have an gift tax consequence. That's a total of all gifts, meaning that you have to keep track of all other gifts you make to them (birthday, anniversary, holiday gifts, etc). The 18,000 limit is known as the gift tax exclusion and it goes up every year due to inflation. Any amount you give to a single individual over the gift tax exclusion becomes taxable gift and first results in a deduction from your lifetime unified credit against gift and estate taxes. So, if you gave each of them $20,000 during the year, you'd have a total of $8,000 in taxable gifts (each kid and spouse getting a $2,000 taxable gift). The taxable gifts first reduce your lifetime unified credit, which in 2024 stands at $13.61 million. You don't pay gift or estate tax until you exceed that credit. So for the $8,000 in taxable gifts to each of the 2 kids and their kids, you'd file a gift tax return to report the $8,000 in taxable gifts and subtract that $8,000 from the $13.61 million. The amount after that subtraction would be the amount of future taxable gifts you could make without paying tax.

So the bottom line is that if the gifts are made this year you won't have gift tax to pay unless you are buying each couple mega million dollar mansions. You'll just use up some of your unified credit and file the return (Form 709).

The problem is that in 2025, unless Congress steps in to change it, all the dollar amounts above will go down drastically to what they were before the Trump tax cut. That wouldn't change any gift tax for 2024, but depending on how much you give you might exhaust that lifetime credit which would mean that gifts from 2025 forward that exceed whatever the reduced annual exclusion will be would result in gift tax to pay, and that gift tax is about 45% of the amount of the taxable gift once the lifetime credit is used up. My guess is that Congress next year will adopt some change to avoid that huge drop, but until after the elections and the new Congress assembles next year, there is no way to know what fix the Congress will do. Again, this problem won't affect the gifts you make this year, but the gifts made this year might limit your taxable gifts in following years.

 

[Taxing Matters]

The $17k/34k limit is not a gift tax limit, it is simply a reporting threshold.

And for 2024, as I explain above, that amount (which is the annual gift tax exclusion) is now $18,000.

 

[Cooper@1960]

Thank you, I hadn't heard of the "lifetime unified credit", that's great information!

 

[Zigner]

And for 2024, as I explain above, that amount (which is the annual gift tax exclusion) is now $18,000.

Yes, I was just going by the OP's figures to illustrate the point