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Sometimes, we may give money as a gift to a person, but then later they pay us back, sort of turning a gift into a loan. How is this handled tax wise?

For example, if the gift giver were to pay the tax on the gift, then later the recipient gives the money back and treats the gift as a loan, can the giver get refunded the tax they paid, or get a tax credit?

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  • For tax questions please add jurisdiction. Tax laws differ from place to place.
    – littleadv
    Aug 27 at 7:48

1 Answer 1

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If the "gift" was repaid within the time period that would allow a 1040X to be filed, then the gift could be re-characterized.

If that time had already expired, then there would not be a method to reverse the declaring the transaction as a gift.

Of course unless the gift dwarfed the lifetime exemption, the gift giver could have written the gift off against the lifetime exemption, and delayed the requirement to pay taxes on gifts until either later in life, or as a part of setting their estate.

Because Congress has a habit of adjusting the level of the lifetime exemption, I wouldn't think it was advisable to pay the tax for a gift that slightly exceeded the annual limit, because the likelihood of exceeding the lifetime limit for most people is small.

Highlights of Lifetime Exemptions and Tax Rates 2000-2022

Year Gift Tax Exemption Top Gift Tax Rate
2000 $675,000 55%
2001 $675,000 55%
2002 $1 million 50%
2011 $5 million 35%
2012 $5.12 million 35%
2017 $5.49 million 40%
2018 $11.18 million 40%
2019 $11.4 million 40%
2020 $11.58 million 40%
2021 $11.7 million 40%
2022 $12.06 million 40%

Of course if congress does nothing to adjust the lifetime limit, then it is due to go back to path it was on before the 2018 adjustment.

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  • Where is a gift reported on Form 1040 or any of its schedules or. attachments? Aug 27 at 13:39
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    @DilipSarwate, gifts are not taxable income in the US, so are not reported on 1040 or any of its schedules or attachments. In some cases, the donor may file Form 709 and related forms, although a majority of individuals in the US will never give gifts requiring filing of the gift tax. Aug 27 at 17:14
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    @user4556274 I am very well aware of what you say. I am just curious as to why a high-reputation participant on this site thinks that filing a 1040x will fix things, and why there would be a tax refund etc as the OP thinks he deserves. Aug 28 at 15:57

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