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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13116
Experience:  15years with H & R Block. Divisional leader, Instructor
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This question relates to gift tax/GST/and potential loan

Customer Question

This question relates to gift tax/GST/and potential loan arrangements between a mother and a daughter.
The hypothetical circumstance is described below:
- a mother gives $700,000 to a daughter in 2016. She has not previously given this kind of money in the prior periods.
- the mother is a green-card holder residing in the U.S and the daughter is a US citizen residing in the U.S. She obtained her citizenship in 2016 (previously she was a green card holder).
1) Scenario 1: the intention of the mother is to give the money to the daughter without receiving anything in return
- Would this transaction be subject to gift tax/GST?
- If so, does the mother and/or daughter have to pay any tax in 2016 or in any future periods in regards ***** ***** transaction above?
- Is there any obligation for the mother and/or daughter to file and report the transaction above to any federal government and local state government?
2) Scenario 2: the intention of the mother is to loan the money to the daughter, and the mother and the daughter have entered into a loan agreement which was signed and the mother is to receive interest comparable or slightly more advantageous than the market rate
- is it possible for the mother and the daughter to enter into a loan agreement that is legally binding and enforceable?
- would the transaction be deemed as a "loan" and be no longer considered subject to gift taxes/GST?
- If the mother receives interest income of approximately $500, and she does not have any other income, would she be required to file federal income tax for 2016 or in the future periods?
Submitted: 2 months ago.
Category: Tax
Expert:  Robin D. replied 2 months ago.

Hello, I'm Robin. Welcome to JustAnswer. I'm reviewing your question now and typing up my reply. I'll post that in just a moment.

Expert:  Robin D. replied 2 months ago.

1) Scenario 1

The mother would need to report the gift using Form 709 because it is more than the annual allowed amount ($14000). As she has not used any of her Lifetime allowance ($5.45 mil) she would not have any actual tax to pay but the amount over $14000 would reduce her lifetime allowance.

The daughter has no reporting obligation because the mother is a Green Card Holder and a US person.

2) Scenario 2

They may have a loan arrangement. A loan is not a gift. Interest would apply which would be taxable to the mother. If she has no requirement to file because the income is below the requirement then she is not required to file.

Please do not forget or ignore to give a positive rating (look for the STARS or SMILEY FACES). It adds nothing to your costs but it assists me.

Expert:  Robin D. replied 2 months ago.

Hi, just checking back to see if you responded or needed clarification after you read my answer to your post.

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