7

Gifting up to $13,000/year (as of 2009) to someone is not subject to gift tax.

http://en.wikipedia.org/wiki/Gift_tax_in_the_United_States

Assuming that the individual receiving the money is older than 25 (cannot be claimed as a dependent), what options are there if more than $13,000 needed to be given to this individual?

For example, would it be possible to loan the amount over $13,000 at a 0% interest rate to the individual? If so, how would this need to be documented for tax purposes?

  • 1
    Just a tip, you might want to use IRS.gov instead of Wikipedia for tax advice. I'd hate to risk an audit over something some guy on the Internet said. – JohnFx Aug 4 '10 at 20:46
  • Here's the relevant page on the IRS website. Or see IRS Publication 950. – bstpierre Aug 4 '10 at 23:47
3

I'm not familiar with US tax law in particular, but the general principle around the world tends to be that interest-free or low-interest loans are taxed as gifts of the difference between a commercial interest charge and the actual interest charged.

You could also forgive ($13,000 - waived interest) of the loan each year. Also, remember that there's a lifetime exemption (covering inheritance as well) of $1,000,000 which can be used for any amounts over the $13,000.

  • 1
    What exactly do you mean when you say a "commercial interest charge"? – Gary Aug 6 '10 at 2:49
  • The amount you would be charged by someone like a bank who didn't have any personal relationship with you. – Ganesh Sittampalam Aug 6 '10 at 9:43
  • 1
    The IRS publishes a list of what interest rates are not considered gifts. See irs.gov/app/picklist/list/federalRates.html – Alex B Aug 9 '10 at 19:09
2

Does the one giving the gift have a spouse? My wife and I can gift up to $26,000 per individual by combining our gift amounts. If the recipient has a spouse, it doubles again, so long as we write the check to that spouse. Other than that, you make a loan and then forgive up to $13,000 in interest and principal each year until the loan is paid off.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.