My parents are US citizens and inherited money from China. They want to give me $100,000 of it. What are the tax consequences?

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Originally Posted by gwenalyth

My parents are US citizens and inherited money from China. They want to give me $100,000 of it. What are the tax consequences?

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There are no immediate tax consequences, but they will have to file a gift tax form with their income taxes next year. No gift tax is actually due (assuming this is the only "significant" gift they have made to you or others). However this may have an impact on their estate planning, as this gift will reduce the amount of exclusion from estate taxes when they die. Consequently their estate may end up owing a greater amount in estate taxes than it would otherwise.

All of what ebaines says is true.

However, there ARE methods by which they can transfer the money to you without ANY gift tax implications.

The most obvious one would be to "loan" you the $100K, with the required promissary note, with an annual payment of $26,000 due on the January 1st. Then, on January 1st, they GIFT you $13,000 each ($13,000 is the annual exclusion amont), which you then use to pay the $26,000 payment. After five years, the loan is paid off, with the interest that the IRS would require on such transactions between related parties.

The only drawback is that your parents would have pay income taxes on the $6,000 in annual interest. That drawback probably makes a direct gift with the resulting gift tax return (as specified by ebaines) as the better solution.

There are other processes available as well.