Nothing, immediately, as long as they don’t exceed their lifetime gift tax limit ($1million i think). However, what they use out of the lifetime gift tax amount, that same amount is deducted from estate tax exclusion that time comes.
For example, if they give you $100k, $26k is excluded via annual gift tax exclusion (joint), so $74k they’ll need to report. That $74k, your inlaws, won’t be subject to additional gift tax now provided they haven’t already gifted beyond $1million out of this lifetime gift ammount (which would only happen if they have gifted in previous years any amount above the annual limits in those years)….BUT, when it comes to estate taxes, they have $74k less to pass through without paying estate taxes.
I guess you need to ask your inlaws if their ok with reducing their estate tax exclusion by $74k.
Personally, I don’t think $74k makes a dent in estate tax exclusion, because if it only comes into play if the estate will be larger than $2.5 million ($5m with some trust strategery)…Furthermore, estate tax on $75k relative to $5m or more would not be very noticeable probably anyway, since they would be bending over anyway. Still, it’s their decision.
Of if not…Have you considered asking your inlaws to gift to other siblings/relatives ($13k increments) and have them gift it back to you? Just a thought. Note also, I believe the is no limit on how much you can receive as a gift from a relative outside the U.S. not subject to U.S. taxes.
Please verify with a CPA.
Article from 2008.. Not sure what the current limits are.
I believe they are $13k for annual, and $1m for lifetime.
The main rules for gifts between individuals are fairly simple. These gifts don’t produce deductions for the donor or income for the recipient. And most of the time there’s no gift tax, either. But if you give more than the annual exclusion amount ($12,000 as of 2008) to one person other than your spouse in a single year, you’ll have some planning concerns — and a reporting obligation.
Recipient doesn’t report income
Gifts you receive aren’t considered income. It doesn’t matter how large they are. You don’t report them on your income tax return in any way.
There are a couple of important qualifications on this simple rule:
* True gifts. This rule applies only to true gifts. You can’t avoid paying income tax by calling something a gift when it isn’t. For example, a “gift” you receive in exchange for services or some other consideration isn’t a gift.
* Income after gift. If you receive a gift of property that produces income, you must report any income produced after the gift. For example, if you receive stock as a gift, you must report any dividends paid on that stock after the gift.
Sorry, no deduction
Some people hear that they can give an annual amount to their child “tax-free” and wonder if this means they can claim a deduction for such gifts. We’ll explain about the annual exclusion amount below. For now we have to deliver the bad news that there is no deduction for gifts — except gifts to qualifying charities.
Basis and holding period
If the gift consists of property other than cash, the basis and holding period of the property will transfer over to the recipient. It’s important for the recipient to know when the donor acquired the property, the cost of the property, and any other information that would affect the property’s basis. Ideally, the recipient of the gift should also receive records that will provide adequate proof of these facts.
It’s also necessary to know the value of the property at the time of the gift. The donor needs this information to determine whether the gift exceeds the annual exclusion amount and, if so, the amount to report on the gift tax return. The recipient of the gift may also need this information to determine whether a deduction is available if the property is later sold at a loss.
details: Basis of Stock Received as a Gift
Gift tax
Although there’s no income tax on gifts, there is such a thing as a gift tax. The gift tax is imposed on the donor. The person receiving the gift does not have to pay this tax.
Most people don’t have to worry about this tax because it generally doesn’t apply until you make gifts exceeding annual exclusion amount to one person within a single year. And there are other exclusions that often prevent the gift tax from applying. There is an unlimited exclusion for gifts to your spouse. (An annual limit applies if your spouse is not a U.S. citizen.) And there’s an unlimited exclusion for the payment of medical expenses or educational costs, provided you make these payments directly to the service provider or educational institution.
The annual exclusion
The annual exclusion is adjusted for inflation and applies to each person every year. The amount is $12,000 as of 2008.
Example: On December 31 you give $10,000 to your son and $10,000 to your son’s wife. On January 1 (the next day) you give another $10,000 to your son and another $10,000 to your son’s wife. If you made no other gifts to your son or his wife during these two years, all of the gifts are covered by the annual exclusion.
If you’re married, your spouse can also make the gifts described in the example. You and your spouse each have your own annual exclusion amount, even if you file joint federal income tax returns.
Giving more than the annual exclusion amount
If you give more than the annual exclusion amount to one person in a single year you’ll have to file a gift tax return. But you still won’t have to pay gift tax unless you gave given a very large amount. The rules let you give a substantial amount during your lifetime without ever paying a gift tax. As of 2008 the amount is $1,000,000.
You don’t use up any of this amount until your gifts to one person in one year exceed the annual exclusion amount. For example, if you make a $14,000 gift in 2008, you have used up only $2,000 of your lifetime limit.
Any amount you use out of your lifetime gift tax exclusion counts against the estate tax exclusion, which is $2,000,000 as of 2008 and $3,500,000 as of 2009. This means that if you use $250,000 of the limit by making gifts during your lifetime, you have reduced by $250,000 the amount that can pass through your estate free of the estate tax. So you shouldn’t ignore your lifetime limit even if you feel certain that your lifetime gifts will never add up to that amount. It pays to plan your gifts around the annual exclusion amount and the exclusions for educational and medical expenses wherever possible.
