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My friend and roommate wanted a new car that would be cheaper

for me to insure (he's...
My friend and roommate wanted a new car that would be cheaper for me to insure (he's only 21 with no history of insurance; I'm 45 with many years of good driving). The car had to be in my name in order to insure it. He gifted me the $17,000 to buy the car in Oct 2010. Who pays taxes/files form 709, if anyone?
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Answered in 1 minute by:
3/28/2011
Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,245
Experience: Extensive Experience with Tax, Financial & Estate Issues
Verified

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Customer:

OK

Stephen E. Grizey :

There's no tax due, but technically he would have to file the gift tax return and after the 13,000. annual exclusion there would be $4,000. of the "gift" that would use a portion of his $1,000,000. lifetime gift tax exclusion. However,

Stephen E. Grizey :

I'm not sure that there was a gift if he has possession of the car. It seems to me that the transfer was made as a matter of convenience and there was really no intent to make a gift to you.

Customer:

Is that "legal"That's federal law; how about the state of FL, which doesn't have an income tax (gift tax, I don't know)

Stephen E. Grizey :

There's no penalty when there's no tax. There's no filing requirement in Florida as there is no gift tax.

Customer:

To be "safe" should he file the gift tax return or "take his chances" and explain the reality to an agent if audited

Stephen E. Grizey :

He's not going to get audited for a gift tax when there's no tax and in effect no gift.

Stephen E. Grizey :

Please remember to "Accept", it is the only way we get credit for our work. Feedback, if you have time, and bonuses, where you think they are warranted, are always most appreciated.

I'll be happy to answer any follow-up questions you may have.

Customer:

Who keeps records of these sorts of transactions? All I have is a slip of paper from Honda showing we paid for the car in cash, in my name

Stephen E. Grizey :

Nobody. Do you think he'll be making gifts in excess of the annual exclusion that will total over $1,000,000.?

Customer:

The 1,000,000 is a lifetime exclusion?

Stephen E. Grizey :

yes

Customer:

No he'll likely never come close to that limit

Stephen E. Grizey :

But there's no gift here anyway.

Customer:

The letter I have from Honda is calleda Deposit Gift Letter

Customer:

I'm happy with that interpretation of the events; I bought the car, but it's his and solely used by him

Stephen E. Grizey :

Exactly.

Customer:

OK thank you

Stephen E. Grizey :

Plus there's no risk, no penalty even if it was deemed a gift.

Customer:

Because with the exclusion he wouldn't owe any tax, right?

Stephen E. Grizey :

Right

Customer:

Great, that's all for now.

Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,245
Experience: Extensive Experience with Tax, Financial & Estate Issues
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