Will the money from the sale of my mother's home be considered an estate gift, even though she is still alive, since I am the recipient in her will?
I am the recipient of my mother’s cabin in her will. She just sold the cabin, and she intends to give the amount ($227,000) to me while she is still alive. Will this be considered an estate gift, even though my mother is still alive? Will I be responsible for taxes on the amount?
You Mother may have wanted to wait for you to inherit the property so you would then have gotten a step-up in basis and no capital gains would have been due. Under this scenario, your mother will have to pay capitals gains on the appreciation from her cost basis. So if she paid $100k, then there is a gain of $127k of capital gains to pay at her capital gains (not income) tax rate, usually between 15% to 20%.
The good news to you is that she has a lifetime exemption of now 11 million in 2018 under the new tax code, up from 5.49 million in 2017, that she can give away estate tax free. But she doesn't have to die to do this, she can give it away "intervivos" or "during her lifetime." So she can give you the $227k, or the net after-tax amount, or any other amount up to 11 Mn free of any tax. Just be sure to file the gift tax return which will be informational only, no taxes will be due.
Hope this helps and best of luck, Dan Stewart CFA®
Your question is a good one but I don't see any reason to worry. In the calendar year 2018, your mother has the ability to gift up to $15,000 to you and if you have one, your spouse separately without any tax consequences to either of you. She does not get a deduction for the gift against her income & you don't have to pay any income tax on the gift. Using the number of $227,000 that you mentioned in your question, your mother will be required to file a 2018 gift tax return for the difference between the $227,000 and the $15,000 she gifted to you. As you may or may not be aware, your mother has the right to leave up to $11 million to you in the form of gifts while she is alive or at the time of her death. Any gift in excess of $15,000 during her lifetime requires the filing of the gift tax return. It's just a return and she will simply be using up $212,000 of her $11 million exemption while she's alive. Again, there are no benefits necessarily to your mother and there's actually no taxable income to you as a result of her gift to you. I hope this helps and good luck.
You should speak with a tax professional or tax planner for specifics.
But in general, your mother will be responsible for any taxes on the capital gains from the sale of property. If she hasn't used it as her primary residence for two out of the past five years, then she'll propbably have to deal with a capital gain. If the sale price was above her basis (purchase prices plus subsequent improvements and real estate sales costs), then she'll report the difference as gain.
If she gifts any amount to you over $14,000 per year, she should also file a gift tax return. This is informational and no tax is due by the giver or the recipient.
Once you have the cash, you'll be responsible for the taxes on any gains or interest that the gifted money may generate as it will then be your property.
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This will be considered a gift. There are a few steps to this transaction and I'll walk through those with you.
First - the sale of the cabin itself. Your mother may owe taxes on the sale of the cabin depending on what her basis was (amount she paid for the cabin) and what she sold it for. (This is assuming that it is not her primary residence.)
So for that part, you have no responsibility for taxes but your mother may.
Second - the transfer of the cash to you. If she just writes you a check for $227,000 neither you nor your mother will owe any taxes. However, her estate tax exemption will be depleted. Here's how it works:
There is an exemption of $15,000 per year. The $227,000 will be lowered by that amount, so her impact will be $212,000.
She then takes that amount and reduces her lifetime exemption, but still owes no tax.
So the short answer is - your mother may owe some tax on the sale of the cabin, but you will not owe any taxes on the cash you receive.
**Please note - this is only a conversation on federal tax, as I do not know what state you reside in.**
She will have to fill out a gift tax form for any amount she gives you over $15,000. However, unless she has a net worth of over $11 million there will be no estate tax due (on her death).
But regardless of estate tax law, she (not you) will be liable for any realized gain on the sale of the cabin, if it has not been her primary residence. Please check with a CPA for details.