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Lev
Lev, Tax Advisor
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If my mother-in-law gifts my wife $280,000 (no previous gifts)

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If my mother-in-law gifts my wife $280,000 (no previous gifts) and my wife uses that money to buy out my community property interest in our home in California pursuant to a transmutation agreement, can I turn around and gift most of that money to my wife's brothers and sisters, or would that invalidate her mother's gift or our transmutation agreement, or create other problems with the IRS?
Submitted: 11 months ago.
Category: Tax
Expert:  BarristerJones replied 11 months ago.

Steven Kincaid :

Thank you for allowing me to assist you.

Steven Kincaid :

Once the money is paid to you, you can do anything you want with it, but you would be liable for the gift tax if you gift the money to your in-laws.

Customer:

No offense, but I submitted this question to Tax experts. I have no idea why it was opened to family law. Is there anything you can do to re-direct this to Tax experts?

Expert:  Lev replied 11 months ago.
Hi and welcome to our site!
Several issues...
If we are discussing a gift - that should be a true gift - not a purchase transaction and not a loan which is paid back or any other types of transactions.
What is considered a gift? Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.
If the transaction is NOT classified as gift - it would be evaluated differently.
2.

In the US - gift - is not taxable income for the recipient and you do not need to be reported to the IRS.

There is no any amount limit. Please see for reference IRS publication 525 page 31 left column - - http://www.irs.gov/pub/irs-pdf/p525.pdf

Gifts and inheritances. In most cases, prop­erty you receive as a gift, bequest, or inheri­tance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you.

3.
hat would be the donor who files form 709 - gift tax return - not recipients of the gift. The gift tax return is required when the total value of the gift is above $14,000 (for 2013) per person per year.
There will not be any gift taxes unless the lifetime limit of $5,250,000 (adjusted every year for inflation) is reached.
So - it is likely that the gift tax return will be required to be filed by the donor, but there will not be any gift tax due.
4.
Transactions between spouses - such as buying out ownership interest in the community property - are not taxable transactions. Such transaction is not reported on the tax return of either spouse.

Let me know if you need any clarification this matter.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22754
Experience: Taxes, Immigration, Labor Relations
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