[starr34]

My father died in 2001 and did not have a chance to revise his will, so my sister and my mother were the only ones on it. The will was dated from before I was born and by the time he died my mother and him were divorced. We agreed to split everything between my sister and I. We sold the condo that he left, but because I was younger, my sister held onto the money for me until I was ready for it. Recently, she gave me this money in the amount of $10,000. Is this considered a gift or inheritance? Do I have to report it on my tax return?
I'm not sure if the year is pertinent in which my father died, since the laws have changed.

[karent23]

I'm no expert, but he died in 2001 so the inheritance tax should have taken place when everything changed hands.

[CaptainRich]

I believe if you weren't listed in the will, it's not an inheritance.
If it is a gift, you should contact a tax lawyer to find out how to file. Accepting this now, even as a gift, might not be in your best interest, financially. Look into this carefully.

[AtlantaTaxExpert]

It is a gift, and is TOTALLY TAX-FREE for both you (the recipient) and your sister (the giver).

It is tax free for you because GIFTS are not taxable to the recipient UNLESS the giver does not pay the gift tax.

It is tax free to your sister (the giver) because it is less than the annual exemption amount of $11,000.

[ballengerb1]

I believe the excemption is up to $12,000 per year per person.

[AtlantaTaxExpert]

It may be $12K! I have not checked in a while.

[karent23]

I do know a parent can gift about $2million to each child with out it being taxed.

[karent23]

Oh and that's in a lifetime.

[ballengerb1]

The limit is $12,000 per year per person, period. It would take 166 years to give $2mil. Anything above the $12,000 will have tax liability.

[karent23]

Sorry I know why I was thinking that... when I was helping out at the estate planning company there was an old couple that could. Each parent can gift so much a year. So if it was a married couple they could gift 24,000 a year to each child.

[AtlantaTaxExpert]

Karent23:

What you were thinking of was using the Unified Credit that exempts your estate from estate taxes when filing a gift tax return.

What most people do not know is that the gift tax and the estate are LINKED. People who routinely give high value gifts to their family have to file a gift tax return if the total in gifts for a year to any one person exceeds $12,000.

Now, they CAN choose to pay the gift tax, or the can access the Unified Credit to avoid paying the gift tax. In doing so, they REDUCE the credit that can be used to offset taxes on their estate when they die.

[CaptainRich]

Karent23:
... are LINKED. People who routinely give high value gifts to their family have to file a gift tax return if the total in gifts for a year to any one person exceeds $12,000.

This much makes sense!

Now, they CAN choose to pay the gift tax, or the can access the Unified Credit to avoid paying the gift tax. In doing so, they REDUCE the credit that can be used to offset taxes on their estate when they die.

... this, however, left me in the weeds! I need translation, please!

[ballengerb1]

Yes that would be correct. Its $12K per person so mom and dad could gift $24,000 to that one child but they can do the same for their other children and grandchildren.

[AtlantaTaxExpert]

CPT Rich:

It's a somewhat complex area of our gift/estate tax system. If you are REALLY interested, send me an email and I will explain it in detail.

[MukatA]

Any thing (money and property) you receive as gift or inheritance, you (the receiver) don't pay any federal tax.

[ballengerb1]

Mukata, are you asking a question or making a statement of fact? If a parent gives a sib $12,001 there is a federal tax liability to the sib.

[AtlantaTaxExpert]

Ballengerb1/MukatA:

What you said is not completely true.

Consider this scenario:

A parent can give a child $10 MILLION dollars, and the child has NO TAX LIABILITY most of the time.

The PARENT has to pay gift taxes on that $10M gift. The Unified Credit could exempt as much as $2M of the gift, which means about $8M would be subject to the gift tax, which would be about $4.3M (rough estimate; no calculations done).

Now, if the parent does not have the money to pay the gift tax, then (and only then) will the IRS go after the child for the money.

The IRS has to do this (go after the receiver of the gift), because if they did not, the wealthy would then arrange to give ALL of their assets to their children late in their life, then claim poverty when the IRS came after them for the gift taxes. Estate taxes would NEVER be paid under these circumstances.