Personal Gifts – Deductible?

Q:        My wife and I gave each of our two daughters a monetary gift in 2011.  Each daughter received $15,000.00.  Are those gifts are deductible?

  A:        Sorry, no, the gifts are not tax deductible. 

 In fact, gifts that are large enough may become a taxable event to the giver.  Under current law you and your wife can each give up to $13,000 (total of $26,000) per year per person and exclude it from potential taxation. Over that amount may require a gift tax return, an adjustment to total lifetime exclusions and/or tax.

 The recipient never has to report or pay tax on a gift received.

If the gift was sold or had earnings, the gain on sale or income due to interest or dividends would be reported and paid by the ‘new’ owner.  If you ever give stocks, bonds or property to someone who then in turn sells it they would need to know what your basis in the asset is to determine how much gain or loss occurs on the sale.

 What’s the basis information you need to give them?

 1.    When did you buy the asset?

2.    How much did you pay for it?

3.    For securities: Were dividend earnings reinvested over the years?  If yes, how much, how many shares were purchased and when.

4.    For property: Did you put any improvements into it?  If yes, how much and what?

This is just the tip of the iceberg of computing the basis of an asset.  The greatest concern is getting the information from the giver to the recipient and that the recipient understands the importance of keeping track of that valuable information.  By not having the information the recipient may end up paying tax on more than is necessary.  

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