Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It only takes a minute to sign up.
Sign up to join this community
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?
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.
