Tax tips for gifting money to loved ones

Posted by Alicia Waltenberger on Jan 9, 2018 12:00 AM
What’s the best gift you ever received as a child? A vintage wooden horse? A talking doll?
For many of us—preferring to choose our own toys—it was the gift of money.
Now that we have grown into the role of gift-bearing aunt or grandmother, we know the giddy pleasures of both giving and receiving—but it’s also important to know the various tax implications for how you bestow your money.
The first crucial thing to remember is the gift tax exclusion limit ($15,000, as of 2018). This is the amount you can give to as many individuals as your generosity allows. So in 2018, for example, you could give $15,000 to each of your nephews, without having to report anything for federal gift-tax purposes. Or, you and your spouse could give $30,000 to a grandchild for her sweet sixteenth. Happy 16-year-old, no unhappy tax consequences for you.
Remember this is a gift tax benefit, not an income tax deduction: If the annual gift tax exclusion limit is $15,000, then anything above that becomes a taxable gift and is applied against your lifetime exemption ($5.6 million in 2018, and indexed for inflation every year). The benefit to you lies in reducing the size of your estate—and the taxes ultimately owed on it. Bear in mind that state-level estate tax limits vary considerably from state to state, so depending on where you live, even relatively modest estates stand to benefit from this gifting strategy.
What if you can and want to give more?
$15,000 might not go very far when your young relative goes off to college. The good news is, you can pay for tuition expenses—as long as you write the check directly to the educational institution—without it counting towards the annual gift tax exclusion limit. So, writing a $50,000 check to the college bursar, and giving your college-age loved one a check for $15,000—to cover accommodation, textbooks and other such expenses—would not be considered taxable gifting.
What’s even better than a cash gift?
Cash, unlike a car, does not plummet in value before it has even been gifted. But nor does its value appreciate afterwards. Therefore, you may want to consider gifting a different kind of asset—one that has the potential to grow. For example:
  • Give your baby niece a bond and you’re giving her not only what it is worth today but whatever value it appreciates to in the future.
  • Assets that generate recurring income, such as a rental property, are ideal to give away during your lifetime, especially to someone in a lower tax bracket.
  • Gifting shares may also yield benefits. Let’s say you bought a $500 share that is now worth $1000. When you gift that share, the recipient inherits the $500 basis. Meaning, if they are in a low tax bracket, they may not be required to pay capital gains tax on the $500 gain. As gift-giver, you benefit from moving the asset out of your estate without having to recognize those capital gains. Selling the share, on the other hand, may have triggered capital gains tax.
     
Most money gifts between family members are of course well within the annual gift tax limit, so the dreaded IRS need never cross your mind. However, for rare expenses like college, and as part of a broader estate planning strategy, gifting can really be a gift to your family legacy.
Teachers Insurance and Annuity Association of America has sponsored Ask the Expert posts for informational purposes only. Many of the experts are unaffiliated with Teachers Insurance and Annuity Association of America, College Retirement Equities Fund, and their affiliates and subsidiaries (collectively TIAA), and TIAA makes no representations regarding the accuracy or completeness of any information on the posts or otherwise made available by the experts. Statements of external featured experts are solely their own and are not endorsed or recommended by TIAA.
Responses from experts to questions posed by Woman2Woman community members are intentionally general in nature and are not intended to give personal, financial, or specific advice. Some strategies are complex, and more information is often needed to determine the personal needs of a community member. We strongly recommend that you consult with a financial advisor before taking any action based on an expertʼs opinion or other information you obtain from the Woman2Woman:Financial Living site so that all of your personal circumstances can be taken into consideration. Participation in the site does not render the member a client of the expert or of TIAA.
This site is not designed to accept or respond to requests or complaints regarding specific TIAA accounts, products or services. If you wish to discuss an issue of that nature, please contact TIAA at 800 842-2252. TIAA is not responsible for any opinions provided by members of this site. TIAA is not responsible for the content or privacy policies of third-party sites to which you may link.
The TIAA group of companies does not offer tax or legal advice. You should consult an independent tax or legal advisor for advice based on your own particular circumstances.
The material and responses are for informational or educational purposes only and do not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor. The material and responses do not take into account any specific objectives or circumstances of any particular individual, or suggest any specific course of action. Investment decisions should be made in consultation with an investorʼs personal advisor based on the investorʼs own objectives and circumstances.
Experts may not have medical or scientific training. Any information related to physical or emotional health is not intended to be used in place of a consultation with a physician.
TIAA is not responsible for the statements of community members. We may link to posts made by community members only to direct you to topics that may be of interest to you. This does not mean that we agree with the opinions of these community members. Their statements are solely their own and are not endorsed or recommended by TIAA.
325125