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My parents offered me a generous gift, specifically they want to pay off $10,000 of my mortgage principal (the mortgage is under my name, not theirs).

However, I am hesitant to let them do this, as I am worried that IRS will consider it a taxable gift and tax that amount.

Is that a valid worry? Or is it safe to let them pay $10,000?

28

Gifts are not taxable income to the recipient.

In the US, gift tax is paid by the giver, not the recipient. However, there is an annual gift exclusion amount (currently $15,000/year). Any gifts under that amount are not taxable and don't need to be reported to the IRS. This limit is per person, so your parents could give you up to $30,000 and have no reporting requirement or gift-tax liability. If you are married that can double, because it's per recipient and per giver.

Even when the annual gift tax exclusion is exceeded, it doesn't necessarily mean there's gift tax owed, as there's also a lifetime exemption, but amounts above the annual limit are required to be reported and either gift tax is owed or the excess counts toward the lifetime exemption.

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    And of course they could each give you $15K today, and another $15K in a couple of weeks :-) – jamesqf Dec 23 '18 at 4:42
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    @jamesqf Just make sure you read this comment near the end of the year as the exemption is annual. 🙂 – Ian MacDonald Dec 23 '18 at 14:03
  • @Ian MacDonald: Yes, comments have dates on them :-) – jamesqf Dec 23 '18 at 18:48
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Highlights from an IRS.com article, "Here are 7 things you should know about the Federal gift tax":

1. Gifts to Family Members Count

The gift tax and exclusion limit (below) apply whether you are making the gift to a complete stranger, a nephew, or your own children. The only person you can give a gift to that is exempt from the gift tax is your spouse. Gifts to your spouse qualify for the marital deduction.

2. There Is an Annual Gift Tax Exclusion

You do not have to pay tax on gifts that are less than the annual exclusion limit, which generally changes every year. Currently, the annual exclusion is $15,000 per recipient. In other words, you can give up to $15,000 to each of your children this year without having to pay any gift tax.

5. Married Couples Can Give Twice As Much

Spouses can each give up to $15,000 to the same recipient and still stay within the annual exclusion threshold. Together, a married couple can give $30,000 to each donee without incurring the gift tax. Most tax professionals recommend that married couples give money in the form of 2 separate checks, each signed by one of the spouses, to avoid any confusion.

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    I was dismayed that an article from the IRS would use the phrase “Most tax professionals recommend...”. Then I realized that this article is on irs.com, not irs.gov. (You might want to make that clear in the answer.) – prl Dec 23 '18 at 12:18
  • Perhaps it is worth pointing out that Christmas and birthday presents are also counted as gifts, and so if you cut a check for $15000 to your Number One Son today (two days before Christmas), you will likely exceed the exempted amount if you have already mailed him a Christmas or birthday present. – Dilip Sarwate Dec 23 '18 at 14:45
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    @BobBaerker, ...I don't read the objection to be that the content itself is misleading or incorrect, simply that it's less authoritative than an irs.gov source. And the opening to the answer describing its information as directly drawn from "an IRS article" when the linked source isn't directly published by the IRS itself is indeed a bit misleading. – Charles Duffy Dec 23 '18 at 16:50
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    @Charles, Yes, that’s exactly what I meant. That phrase was what clued me into the fact that this is not from an IRS publication. – prl Dec 23 '18 at 21:41
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    @prl You should not be so cynical! If a gift of $30k or less from one spouse is split equally on a Form 709 filed by that spouse, the other spouse does not need to file a Form 709 at all, does s/he? The tax professionals are shooting themselves in their feet by suggesting that the spouses give $15k each in which case no Forms 709 need be filed at all and so the tax professionals get to charge nothing, as opposed to telling the spouses to send only one check for $30k to be signed by one spouse only, so that at least one, and maybe two, Forms 709 must be filed: more charges for services! – Dilip Sarwate Dec 24 '18 at 3:57

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