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Ask the Expert: I’d Like to Give My Son $50,000 for a Down Payment on a Home. What Are the Gift Tax Implications?

Insights & Ideas Team •  January 29, 2016 | Your Finances, Home and Family, Ask the Expert

By Elizabeth Taylor, former Director – Estate Market in the Specialty Markets Division

Each week our Northwestern Mutual retirement experts answer your questions. This week’s question:

I’d like to give my son $50,000 for a down payment on a home. What are the gift tax implications

As is the case with most tax questions, it depends. When a gift is made, there are a couple of things to look at before you would have to pay any gift tax.

First is the annual exclusion. That’s an amount you can give as many people as you want, each year, without owing gift tax. For 2016, that amount is $14,000. So, for example, if you wanted to give away money to 30 people, you could give each person $14,000 this year without owing gift tax. Also, if your spouse consents, you can “borrow” his or her annual exclusion for the year (as long as he or she doesn’t make gifts to the same person this year), so that gets you to a $28,000 gift without owing any gift tax. Note that this strategy of “borrowing” your spouse’s annual exclusion—technically called gift splitting—requires that you file a gift tax return.

Since your gift to your son is more than what can qualify for the annual exclusion, next look to your gift tax exemption—sometimes also referred to as the lifetime exemption. The gift tax exemption is a cumulative amount—for 2016, $5.45 million—that you can give either during your lifetime or at death without owing gift or estate taxes. Making gifts that use a portion of your gift tax exemption require that a gift tax return be filed.

Your $50,000 gift will qualify for either $14,000 or $28,000 of annual exclusion. The balance will qualify for your gift tax exemption. Making this gift will require filing a gift tax return to report the use of your gift tax exemption (and possibly report gift splitting). So, unless you’ve already made gifts that have used up your gift tax exemption, you will not owe gift tax. You should talk with your tax advisor to confirm the application of these rules to your situation and to file the gift tax return on your behalf.

Do you have a question for our Northwestern Mutual retirement experts? Click here to send your questions.

This publication is not intended as legal or tax advice.

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