If you are looking to purchase a home you may have a family memeber who wants to help. When using gift money, there are a few things to know:

Tax Rules for Gifts

1. No deductions for the donor or for the recipient.
Gifts don’t produce deductions for the donor or income for the recipient. And most of the time there’s no gift tax, either. But if you give more than the annual exclusion amount ($12,000 for 2006 and 2007) to one person other than your spouse in a single year, you’ll have some planning concerns — and a reporting obligation.

2. Recipient Doesn’t Report Income
Gifts you receive aren’t considered income. It doesn’t matter how large they are. You don’t report them on your income tax return in any way. There are a couple of important qualifications on this simple rule:
True gifts. This rule applies only to true gifts. You can’t avoid paying income tax by calling something a gift when it isn’t. For example, a “gift” you receive in exchange for services or some other consideration isn’t a gift.
Income after gift. If you receive a gift of property that produces income, you must report any income produced after the gift. For example, if you receive stock as a gift, you must report any dividends paid on that stock after the gift.

3.Gift Tax
Although there’s no income tax on gifts, there is such a thing as a gift tax. The gift tax is imposed on the donor. The person receiving the gift does not have to pay this tax. Most people don’t have to worry about this tax because it generally doesn’t apply until you make gifts exceeding annual exclusion amount to one person within a single year.

4. The Annual Exclusion
The annual exclusion is adjusted for inflation and applies to each person every year. The amount for 2006 and 2007 is $12,000.
Example: On December 31 you give $10,000 to your son and $10,000 to your son’s wife. On January 1 (the next day) you give another $10,000 to your son and another $10,000 to your son’s wife. If you made no other gifts to your son or his wife during these two years, all of the gifts are covered by the annual exclusion.
If you’re married, your spouse can also make the gifts described in the example. You and your spouse each have your own annual exclusion amount, even if you file joint federal income tax returns.
Expections: There is an unlimited exclusion for gifts to your spouse. (An annual limit applies if your spouse is not a U.S. citizen.) And there’s an unlimited exclusion for the payment of medical expenses or educational costs, provided you make these payments directly to the service provider or educational institution.

Giving More Than the Annual Exclusion Amount
If you give more than the annual exclusion amount to one person in a single year you’ll have to file a gift tax return. But you still won’t have to pay gift tax unless you have given a very large amount. The rules let you give a substantial amount during your lifetime without ever paying a gift tax. As of 2006 the amount is $1,000,000. You don’t use up any of this amount until your gifts to one person in one year exceed the annual exclusion amount. For example, if you make a $14,000 gift in 2006, you have used up only $2,000 of your lifetime limit. Any amount you use out of your lifetime gift tax exclusion counts against the estate tax exclusion, which is $2,000,000 (for 2006 through 2008). This means that if you use $250,000 of the limit by making gifts during your lifetime, you have reduced by $250,000 the amount that can pass through your estate free of the estate tax. So you shouldn’t ignore your lifetime limit even if you feel certain that your lifetime gifts will never add up to that amount. It pays to plan your gifts around the annual exclusion amount and the exclusions for educational and medical expenses wherever possible.

Check me out on the web at

About lcartolano

Hello! I am a Real Estate consultant working and living in the California East Bay (Oakland, Alameda, Piedmont, Berkeley area) with my husband and two young boys. I am a transplant from New Jersey and have been living on the West Coast for the last 17 years. I became a Real Estate Consultant because I enjoy working with people, and helping clients find the homes of their dreams, or reap the benefits of their investment in Bay Area real estate. It’s important to me to listen to your needs, provide the highest level of service and follow through on what needs to be done to and help you achieve your real estate goals. e-PRO Certified As more and more consumers begin their search for real estate-related information on the Internet, it is critical that real estate professionals are well educated in the use of technology to the benefit of both the consumer and the agent and/or broker. Realizing the importance of technology training, the National Association of REALTORS® (NAR) now offers its members the e-PRO certification course -- the only technology certification program offered by NAR. The program is designed to prepare real estate professionals to make the most of Internet technology and to identify, evaluate, and implement new Internet business models. The elite group of course graduates represents only one percent of all REALTORS in the country including Lisa Cartolano of Alain Pinel Realtors. QSC Certified QSC (Quality Service Certification) is a new training program for real estate professionals. It requires agents to follow specific procedures and introduces standards of practice for the benefit of the consumer. When consumers spend significant dollars for a service, they expect consistency, reliability, accountability and responsiveness from that professional service provider. Until now, the absence of service standards in the real estate industry contributed to the inconsistency of satisfaction and value experiences by the home seller and home buyer. Thus the Quality Service Certification program was created to offer greater value to the home buyer and home seller by providing consistent, reliable, accountable and responsive service for every real estate transaction. this service is provided by a Quality Service Certified real estate practitioner. Alain Pinel Realtors is proud to announce its association with Lisa Cartolano. An integral part of Alain Pinel Realtor´s dedication to excellence is the collaboration of high caliber professionals. Lisa Cartolano certainly fits that profile. Lisa brings to APR a wealth of skill, experience and professionalism, and joins a group of distinguished real estate professionals who are all part of the most sophisticated and technologically advanced marketing firm specializing in distinctive properties and estates. Alain Pinel Realtors is dedicated to excellence and our association with Lisa Cartolano is a bright example.
This entry was posted in Uncategorized. Bookmark the permalink.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s