• Skip to main content
  • Skip to primary sidebar

Ask Liz Weston

Get smart with your money

  • About
  • Liz’s Books
  • Speaking
  • Disclosure
  • Contact

Q&A: The give and take of federal gift tax rules

March 13, 2017 By Liz Weston

Dear Liz: We are planning to build an addition to our home so that my mom can move in with us and will take out a loan to pay for it. Let’s say that we put down $50,000 and take out a loan for the remaining cost of $150,000. After the addition is built, my mom will sell her house and with the proceeds she will give us $200,000 to pay for the cost of the addition. Is this considered a gift? Or is it considered payment for a place to live (i.e. she gets something in return), and therefore it is not a gift?

Answer: What do you want it to be?

If you want it to be a gift, then it certainly can be. If your mother wanted to give you the money all at once, she would need to file a gift tax return because the amount exceeds the $14,000 per recipient annual exclusion. But she wouldn’t need to pay gift tax until the amount she gives away in excess of the annual exclusion reaches a certain limit (which is $5.49 million in 2017).

Gifts in excess of the annual exclusion also affect how much of a wealthy person’s estate can pass tax-free to heirs. If your mother is worth more than about $5 million, she should consult an estate planning attorney before making any gifts.

If she doesn’t want to bother with a gift tax return, she could give you and your spouse $14,000 each, or $28,000, per year until she’s given the $200,000.

If you or your mother prefer to make payments over time and treat the money as rent, you would need to declare the income. You could write off certain rent-related expenses, such as a portion of insurance premiums and repairs, that wouldn’t be deductible otherwise, plus you’d get another tax break from depreciating the portion of the property that’s considered a rental.

But that could trigger a big tax bill when you sell the home, so make sure you run this plan past a tax pro who can help you weigh the costs and benefits.

Related Posts

  • Gift tax rules allow for plenty of giving

    Dear Liz: My husband and I have given our daughters gifts over the years, but…

  • Q&A: Gift tax returns

    Dear Liz: You recently answered a question about gift taxes and mentioned gift tax returns.…

  • Q&A: Federal estate tax exemption

    Dear Liz: You mentioned that the federal estate tax exemption limit this year is $5.49…

  • Q&A: How to avoid triggering gift taxes

    Dear Liz: Is it possible to make student loan payments directly toward our son’s lender…

Filed Under: Q&A, Taxes Tagged With: gift tax, q&a, real estate, Taxes

Primary Sidebar

Search

Copyright © 2025 · Ask Liz Weston 2.0 On Genesis Framework · WordPress · Log in