Be Careful When Making Certain Types of Gifts

Be Careful When Making Certain Types of Gifts

Gift giving is a popular estate planning strategy to reduce the taxable value or your estate. However, the IRS has some very strict rules in place that govern the nature and amount of gifts you can give within a certain time without taking a tax hit.

Here are a few strategies you should avoid if you don’t want to deal with the IRS.

Conditional gifts

The IRS sets a maximum amount of money you can give to a single person each year without having to file a gift tax return. However, you may not make a gift with the intent of receiving something in return and still consider it a gift. For example, if you give a property to a child but still expect to receive rent from the child for living there, it’s not actually a legal gift.

“Loans” that you don’t expect to be paid back

If you make a loan to a friend or family member, there must be an intent to pay it back for it to truly be a loan. Otherwise, the “loan” will actually be considered a gift and may be subject to the Federal gift tax. The IRS will consider the following factors when determining whether something is a loan or a gift:

  • The implementation or use of a promissory note
  • The ability of the borrower to repay
  • Your demands of repayment (or lack thereof)
  • Interest charged on the loan
  • Collateral for the debt
  • Records indicating the transfer was designed to be a loan
  • Reports to the federal government of it being a loan

For more information about how you can reduce your estate tax burden legally, contact a trusted Tampa, Florida estate planning attorney at BaumannKangas Estate Law.