JP,

You and your wife have no income tax issues or any type of reporting issues with this gift from your parents. Your parents, however, will probably have at least a gift tax reporting issue.

Generally, any person can give another person a gift of $12,000 each year without any gift tax issues. This is called an annual exclusion gift. Such a gift generally does not have to be reported. Once the gift exceeds that amount then the reporting requirements come into play. Gifts that need to be reported are done so on a gift tax return that is due at the same time as the income tax return. Just because a gift tax return is filed does not meant there is a gift tax liability. If the donor has a spouse the amount can be doubled but only as long as the non-gifting spouse agrees to gift-splitting. In your case, your parents could have made a gift of $48,000 under the umbrella of the annual exclusion because you also have a spouse (i.e. $24,000 to each of you). If the gifts to you and your wife exceed $48,000 they still probably would not have a gift tax liability because they can apply some of their $1,000,000 unified credit against the portion of the gift in excess of that amount.

Finally, if your father gave you a gift of $20,000 he should still file a gift tax return electing to split the gift with his wife. The simple way to avoid that in the future is to have each parent give you a gift of $10,000 allowing both of them to avoid the need to report the gifts.

As an estate planning attorney associated with the mdtaxes group, I would be happy to answer any further questions you or your parents may have. Please contact me directly.

Neil L. Cohen, Esq.

Broude & Hochberg, LLP
75 Federal Street
Boston, MA 02110
(617) 748-5116
ncohen@broude.com

IRS Circular 230 Required Disclosure: To ensure compliance with IRS requirements, we inform you that any tax advice contained in this communication (or any attachment hereto) is not intended or written to be used, and cannot be used by the recipient or any other person, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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