GIFTS and INHERITANCES

GIFT TAX -- See IRS Publications 559 & 950
One of the most frequently misunderstood things is the tax treatment of Gifts and Inheritances. Neither of these are income to the recipient and neither is taxable to the recipient.
If any tax is due at all, it would be a tax on the donor or the estate of the decedent.

If you acquire property by gift and later sell it, your cost for calculating gain or loss is the same as if it were in the hands of the donor.
If you acquire property by inheritance, your ‘basis’ is generally the fair market value of the property on the date of death.

Taxable Gifts: If you give someone a gift of $12,000 or less you do not have to file a gift tax return (Form 709). If you give more then you should file Form 709, but there may be no tax due. Tax would be due if the cumulative gifts made over the years exceeds $ 1 million.

ESTATE Tax. No tax is due unless the estate exceeds $ 1 million. If a return is due it would be reported on Form 706.

Fiduciary Tax return. An estate may not be settled immediately, so the Estate itself could have income: for example interest on bank accounts. This would be reported on Form 1041.

Income in Respect of a decedent.(IRD) This is income the decedent had a right to receive, while living, but was not paid until after death. This is reported on a Form 1040 for the decedent.

For further information, click the Link to IRS FORMS & PUBLICATIONS in the “Links” section near the bottom of this page..

This information is not intended to be advice to the recipient.In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this correspondence was not intended or written to be used and cannot be used for the purposes of avoiding penalties.