I have a question regarding some money that is being gifted to my family. The person giving us the money is my mother in law. I do have to give you some background info first. When we purchased our house over a year ago, she loaned us $20,000. I write a check to her every month, without fail. She told us that because one of her children (my BIL) is having financial problems and has asked her for help (got girlfriend pregnant, and now is begging his mom for money, it just makes me sick!), she feels obligated to give ALL of her children money ( there are 4 of them). BUT.......instead of cash, she is taking the 10 grand off the remaining amount that we owe her.
Here is my question:
Do I have to claim the gift on my taxes or is there a cut off amount?
I do not know if my MIL is going to claim it on her taxes.
Also, does it make a difference if it is cash opposed to having the money "taken" off the bill.
I hope I made some sense........
thanks so much!!!
Thanks everyone for the info! I just love this website!!!!
You are allowed to gift up to $12,000 to anyone without having to report it for taxes. So, you're in the clear.
She can "forgive the loan" and take it off her taxes as a deduction.
It is awesome to be without that debt. I am so happy for you.
EDIT: To the person who thinks my numbers are wrong...here is what the IRS says about "gifting" money....and here is the link:
http://www.irs.gov/businesses/small/article/0,,id=108139,...
How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, and $13,000 on or after January 1, 2009, the annual exclusion applies to each gift.
What if my spouse and I want to give away property that we own together?
You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (effective on or after January 1, 2009).
ORIGINAL POST:
If she is "gifting" you the money - by IRS tax code, one is allowed to gift up to 12,999.99 per year without any tax ramifications.
If she is going to forgive the debt that you owe her - that's a whole 'nother ball of wax. If she forgives a debt you owe - you MUST claim it on your taxes.
It would be best for YOU if she "gifts" you the money instead of "forgiving your debt"...
You can go to http://www.irs.gov for more information.
GOOD LUCK!! I think it's great that you have a MIL that can do this. Your BIL needs to get his apron strings cut, learn what causes babies and man up instead of begging mama for money...sounds like you got the man of the family!!
Added: I should add here that since your MIL want to "give" you money, that means she doesn't want to "cost" you money to the IRS by claiming it on her taxes. What's the point of forgiving you the loan (she is family - this isn't a business) if you just have to pay Uncle Sam? Just run it by her and make sure she wasn't planning on having you pay taxes on the rest of the loan she has forgiven. And don't forget that letter!!!
Original:
No. You don't have to do that, and she can't claim it on her taxes either. After Jan 1st of 2009, the top amount of top gifting is $13,000 per person. So you could be given a gift of $13,000 and your husband could be given $13,000 (total of $26,000) and you wouldn't have to report anything under that on your taxes. And your MIL won't have to pay gift taxes over that amount.
So... if what is left is less than $13,000, you don't have to worry about it. If it's more than that, then split the "gift" between you and hubby, and no worries.
However, you should write a letter saying that there is no debt as of this date, and have her sign it and get her signature notarized. You would be remiss to not do this. You have NO IDEA what someone in the family, (ahem, this BIL of yours who makes you sick,) might try to do in the case of your MIL's death. He could go to the executor of the estate and demand that your debt be paid to the estate so that he could get more money. If you don't have a letter saying you have no more debt, the executor could make you pay.
Dawn
Gift taxes are actually paid by the giver, crazy I know. But each of your in laws could give you 12,500 or 25,000 without any tax consequences.
Oh, if you did it as Mona describes you would have to claim it on your taxes. I don't think most people know written off debt is ordinary income.
Wow, she is awesome.. Your BIL needs a kick in the butt though.
Yes, the moms are correct she is allowed to gift you money without tax problems.
The number below is truly doubled. She can gift the basically 10k to you and another 10k to your husband.
I am impressed at both the fact they have that much floating around to gift and even more impressed they are giving it to everyone.
How it is given does not matter in terms of cash vs paying off a debt.
It must be nice to see such a big chunk of that debt go away.
I don't know about forgiving a loan, but 10,000 is the cutoff amount. If she gives you $9,999, you don't have to report it or claim it.
