Is there anyone around who know a little about tax law?

[Rainbowreflect]

I was wondering if someone could answer a tax question?

If adult brother, Fred, paid off adult brother, Frank's, second mortgage would Frank owe taxes on the money as if it were a gift?

Any thoughts would be greatly appreciated.

[Rainbowreflect]

1. Selfish kick for input.

[customerserviceguy]

2. Gift taxes

are imposed on the giver.

I haven't done taxes for years, but I believe there is a $12,000 amount that one person can give another. However, if there are married couples involved, that makes things different. If Fred and Mrs. Fred paid off Frank and Mrs. Frank's mortgage, they could do this to the tune of $48,000, and not have any gift tax liability.

Additionally, if one went over the amount, there would not be tax due in most all cases. Each person gets a lifetime exclusion that is used for gifts and inheritances. If you exceed the $12,000 per person limit, you file a gift tax return with the IRS, and your lifetime exclusion is reduced by the amount the gift exceeds the $12K.

True gifts are not taxable income to the recipient. But if they are not really gifts, but some sort of "you do this for me, I'll do that for you," then they might be construed as wage or self-employment income.

Your mileage may vary.

[Rainbowreflect]

3. Thank you, that was kinda what I thought.

I work in family law, and my tax law classes were a long, long time ago.

[customerserviceguy]

6. I can tell you this

when I was doing taxes back in the 1980's (was enrolled to practice before the IRS), I sure wish people in the family law field were more conversant with tax law, I really saw a lot of divorce decrees where the tax implications were poorly thought out.

Really, it would make sense for a firm that handled a lot of divorces to have a tax partner go over the proposed settlements, there are a LOT of potential pitfalls.

[Rainbowreflect]

7. I totally agree with you.

The documents we get from private attorneys can be scary.
I work for the government and always here how lazy and worthless government employees are, but I know we would never get away with the level of work I see from private companies and firms.

[Cerridwen]

4. I found this at the irs web site

Gift Tax

The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not.

The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

There is additional information at their FAQ page. It includes:

Who pays the gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

What is considered a gift?
Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.

What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.
1. Gifts that are not more than the annual exclusion for the calendar year.
2. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
3. Gifts to your spouse.
4. Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

[Cerridwen]

5. Some examples

can be found at this link.

It includes a table for "annual exclusions".