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Guru_Guy, Lawyer (JD)
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Experience:  I am a lawyer who understands tax law and finance.
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If my parents pay off my mortgage do I have to claim that as a gift

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Submitted: 7 years ago.
Category: Tax
Expert:  Guru_Guy replied 7 years ago.
You do not have to claim it, but your parents might.

Gifts are not considered taxable income. A recipient does not need to declare it nor pay any taxes.

Gift taxes, if assessed at all are assessed against the giver. Any gift under $12,000 per year need not be reported. So, if your mother gave you $12,000 and your father gave you $12,000 and they each gave your spouse (if there is one) there could be a combined gift of $48,000 all sliding under that $12,000 limit.

If the gift is more than $12,000, your parents would have to report the gift on form 709 on their next year's income taxes. You can view the form here:

http://www.irs.gov/pub/irs-pdf/f709.pdf

However, even if the gift needs to be reported, it would not require that any taxes be paid unless your parents have already reached their $1 million lifetime limit. The first $1 million in reported gifts are tax free. After that, the gift tax kicks in on future gifts.

Reported gifts also reduce the amount of an estate exempt from taxation. For example, say your parents die with an estate worth $1.8 million, but they have already given away $500,000 in reported gifts. Normally the first $2 million in estate value is exempt from taxes. But since they already gave way $500,000, the limit is reduced to $1.5 million, so the $300,000 of the estate above that limit would be subject to federal estate tax.

So the botXXXXX XXXXXne is that you owe no taxes. Unless your parents are millionaires, they will probably never be affected tax-wise by the gift. But, if reaching that lifetime limit is a concern, it would be better to receive the gifts in chunks of $12,000 over a period of years.

I hope this helps!
Guru_Guy, Lawyer (JD)
Category: Tax
Satisfied Customers: 2418
Experience: I am a lawyer who understands tax law and finance.
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