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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Can someone else pay off my mortgage without tax implications

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Can someone else pay off my mortgage without tax implications ? My mother recently came into an inheritance. She wants to write a check directly to my mortgage company to pay it off. Would this transaction create tax implications ?

Hello Customer,




If your mother pays off your mortgage for you or any other debts that you have, this would be considered a gift. If and when gift tax is ever due, it is paid by the donor of the gift. If the amount of the gift exceeds $13,000 in any one year, then your mother needs to report the gift by filing Form 709 with the IRS, although no gift taxes would likely be due.


Under current law, each taxpayer is allowed to give gifts of up to $1 million in their lifetime before they begin paying gift tax. Gifts which exceed $13,000 to the same person in one year must be reported on Form 709, and those gifts then reduce the taxpayer's remaining lifetime limit. But no taxes actually apply until the taxpayer reaches that $1 million lifetime exemption.



Thank you Customer



Customer: replied 6 years ago.
Is this million dollar exclusion the same one that applies to inheritance and estate tax ?
Or is that an additional million dollar exclusion ?

Hello again Customer,


Yes, it is the same $1 million exclusion that is part of the estate tax exclusion. Here is the way it works.


When your mother passes away, her estate will only be subject to estate taxes if the total assets exceed a certain value. For the 2010 tax year the entire estate tax has been repealed, but it is set to return in 2011 and will apply to estates worth $1 million or more. However, that exemption amount may very well be increased, but there is just not way to know yet what the level will actually be.


But just for purposes of an example here, let's say that when your mother passes away that the estate tax exemption is $2 million. For purposes of valuing her estate, they would value all of the current estate assets plus add in any gifts that she reported making on the Form 709 where gift tax had never been paid. So eventually those gifts will play a part in determining her estate value. But they will not actually be taxable for gift tax purposes unless she exceeds the $1 million limit.



Thank you Customer



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