Discussion:Is gift to sister taxable

1. Does the brother have to file a form 709 and pay on the $25,000.00 gift, or the amount after the exclusion which would be $13,000.00. An attorney told her that no return would have to be filed, since the gift was for the purchase of a house.

If he has to pay any tax on the money he wants her to pay him back.

Thank you for your help. SEBROFS

When you're talking about estate and gift taxes, the tax obligation, IF ANY, is on the DONOR, NOT THE DONEE.

The "gift" is the transfer of title/ownership of assets - not the physical possession of items given.

Now - to determine if the brother and sister in law need to file a Form 709 - depends on how the check was made out. Did the brother and spouse issue 2 different checks for $12,500 - or was one check made out for $ 25,000? Whose bank account was the check drawn - a joint account or an account of only 1 spouse?

Regardless of what the answer is above - one way or another a Form 709 needs to be filed because it exceeds the annual exclusion. It's just a question of whether 1 or 2 709s need to be filed.

No money is due with the return - it's just an information form letting IRS know that part of the lifetime exclusion has been used up.

The brother and his wife can split the gift, which would treat it as two gifts of $12,500. The annual gift exclusion would be applied twice leaving a "net gift" of $1,000.

The couple undoubtably has enough unfied credit left to absorb any tax on the $1,000. Or the couple can treat the $1,000 as a loan (meaning a bona fide loan that charges interest) in which case, the $1,000 wouldn't be considered a gift.

Good points tho about separate checks, I didn't think it thru.....do you think they could claim the $$ over the exclusion were a loan if sis pays back ASAP or is that a bit sketchy?

With a married couple, I am not convinced that seperated checks are neccessary.

I'm pretty sure that the exclusion for 07 is still 12,000, but the 2007 709's havn't been published yet.

Alternatively, to make it simple he could write a check of $24,000 from a joint account controlled by both him and his wife to you, and a check for $1k to your wife from the same account.

Of course - this is a GIFT. Which means that there are no "strings" attached in regards to repayment (not even pay me when I'm dead and buried) - a good mortgage broker/loan company is likely to make your friend sign an affidavit to that regard. And lastly, you know what happens when you borrow money from friends...

DISCLAIMER: I AM NOT A CPA or EA. I am a tax preparation professional having prepared (as a business) individual and corporate tax returns for 5 years now. Also, please consider this advice to be worth exactly what you paid for it :-)