Debunking A Myth About Gift Taxes
We would like to help pay off our children’s houses. Both owe approximately $100,000 each. Is there any way to do this considering the gift taxes and other obstacles?
You can do it. The limit, which is $13,000 per year, per person, has nothing to do with estate gift taxes. According to the law, any American can gift up to $1,000,000 in their lifetimes without worrying about any gift taxes. The IRS holds a ledger with the amount of $1,000,000. Only when the amount exceeds $13,000 does a person needs to contact the IRS.
So a gift of $100,000 can be done without worrying about gift taxes or income taxes. The only thing that would need to be done is to file a gift tax return(pdf), in which case the IRS will reduce your $1,000,000 lifetime exemption accordingly. In this specific case the IRS will reduce the $1,000,000 by $87,000 each.
The other impacts that this gift may have is that if either parents requires medicaid within the next five years it may become complicated. However, if done properly, this would not be a problem either. Since this will be done without medicaid in mind, medicaid cannot count this as a penalizing transfer.
But the problem is that medicaid presumes that no one ever makes a gift for reasons other than qualifying for medicaid. Therefore, some documentation will need to be secured before making the gift in order to stop this from coming back to haunt you.