Howdy mcgrofo-ga,
A reminder of the: "Important Disclaimer: Answers and comments provided on
Google Answers are general information, and are not intended to substitute
for informed professional medical, psychiatric, psychological, tax, legal,
investment, accounting, or other professional advice."
This Internal Revenue Service (IRS) web page discusses gift tax questions.
http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
"Q: 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.
Q: 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.
...
Q: How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if
you give each of your children $11,000 in 2002, 2003 or 2004, the annual
exclusion applies to each gift.
Q: What if my spouse and I want to give away property that we own together?
You are each entitled to the annual exclusion amount on the gift. Together,
you can give $22,000 to each donee."
This means that the gift from your parents you describe does not have to be
reported and is excluded from taxes. Keep in mind that this does not address
any possible tax liabilities that your parents might have from the sale of
the house in Costa Rica, which is beyond the scope of your question.
So, what your parents can do, if the two brothers that do not have checking
accounts are amenable, is to gift $11,876.48 to each of the brothers that
have checking accounts, and those brothers could in turn give $5,938.24 to
the two other brothers in cash, or in the form of a cashier's check, etc.
Probably the easiest way to transfer the funds is with a wire transfer. The
eHow web site has "Clear Instructions on How To Do (just about) Everything,"
including this page titled "How to Conduct a Wire Transfer."
http://www.ehow.com/how_2817_conduct-wire-transfer.html
"A wire transfer is a transfer of money from one bank account to another. The
actual transfer is done by the bank, and neither the sender nor the recipient
of the money sees or touches the actual funds."
The above page goes on in more detail on the process, so you might want to
read the whole article.
There are always money orders, both through a bank or Western Union, or you
could use a Western Union money transfer, but they can be pricier than doing
a wire transfer, etc. Here is their web page if you decide to go that route.
You can locate Western Union offices worldwide there.
http://www.westernunion.com/
"Let us help you online, by phone or at any of our 196,000+ Western Union
Agent locations worldwide."
If you need any clarification, feel free to ask.
Search strategy:
Utilized the IRS and Western Union web sites as noted above.
Google search on: "wire transfer" FAQ
://www.google.com/search?q=%22wire+transfer%22+FAQ
Looking Forward, denco-ga - Google Answers Researcher |
Request for Answer Clarification by
mcgrofo-ga
on
10 Feb 2005 20:01 PST
Denco-ga,
your answer is great but no where do I see any mention to
international property. Does it matter if the property sold is in
another country? Also, I forgot to mention -- my parents bought the
property but they put the house under all of our 4 brother's names. So
I think we'd all together be "sellers". How does this change things?
Also, we've given our grandmother power-of-attorney power to sell the
house so I'm assuming she can also deposit the lump sum to her account
first.
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Request for Answer Clarification by
mcgrofo-ga
on
10 Feb 2005 20:36 PST
For what it's worth, it seems in my specific case (I was specific, you
know), my parents are "doning" 5.9k to me. If they put the property
under our names, and the money is going directly to us it seems it is
what the IRS would consider a gift.
Then -- the IRS seems to indicate that if a parent can give their
child up to 11k / year without being taxed. They even provide one
example:
Example 1. In 2004, you give your niece a cash gift of $8,000. It
is your only gift to her this year. The gift is not a taxable gift
because it is not more than the $11,000 annual exclusion.
http://www.irs.gov/publications/p950/ar02.html#d0e221
What do you think?
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Request for Answer Clarification by
mcgrofo-ga
on
10 Feb 2005 20:38 PST
I also wonder though, but doesn't the recipeint have to pay tax on
this? Well the IRS website states:
Q: 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.
http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
Let me know what you think
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Clarification of Answer by
denco-ga
on
11 Feb 2005 12:42 PST
Howdy mcgrofo-ga,
"Does it matter if the property sold is in another country?"
As far as gift tax, etc. the IRS does not say anything about that, which
means that they don't care about the source (foreign or domestic) of the
gift. That doesn't really matter if we consider the following.
"Also, I forgot to mention -- my parents bought the property but they put
the house under all of our 4 brother's names. So I think we'd all together
be 'sellers'. How does this change things?"
That is potentially a big thing to forget to mention, and possibly a more
complicated circumstance. Here are the new questions that have to be asked,
especially if there are more things you "forgot to mention" in your original
question.
- What was the purchase date for the house?
- What was the purchase price?
- Was there rent, etc, collected from the property?
- What was the sale date?
Here is the current situation with the previously unmentioned circumstance
taken into the formula. These are hypothetical until the above questions
are answered.
- A house was purchased in Costa Rica in February, 2001.
- The purchase price was 10 million Colones.
- This would make it worth $21,593.60, or $5398.40 split four ways.
When the property was purchased and placed in the four brother's names, that
was the "gifting" of the property, and under that basis, it would have been
under the (then) $10,000 per person exemption, so exempt from taxes.
To continue the hypothetical, said house is then sold in February, 2005 for
11 million Colones, or $23,752.96, which is $5938.24 split four ways.
From the already referenced IRS web page titled "Gift Tax Questions."
http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
"Q: What if I sell property that has been given to me?
The general rule is that your basis in the property is the same as the
basis of the donor. For example, if you were given stock that the donor
had purchased for $10 per share (and that was his/her basis), and you
later sold it for $100 per share, you would pay income tax on a gain of
$90 per share."
I read the above to mean that each brother in our hypothetical situation
would be liable for taxes on the gains between the value of the gift
($5398.40) and the amount they gained through the sale of the property
($5938.24) which would be $539.84.
There might be complications, because at the time of the above gift, the
property might have needed to be independently appraised as part of the
IRS Form 709 process, so as to ascertain the true value of the house.
There are some potential complications on the above, as the parents, if
they purchased the initial property with joint funds, might have been
required by the IRS to file a Form 709.
http://www.irs.gov/instructions/i709/ch01.html
"If you are a citizen or resident of the United States, you must file a
gift tax return (whether or not any tax is ultimately due) in the following
situations.
...
Likewise, each spouse must file a gift tax return if they have made a gift
of property held by them as joint tenants or tenants by the entirety.
...
If a donor dies before filing a return, the donor's executor must file the
return."
So, if it was just one parent's money that was used, for instance, then a
Form 709 might not have to be filed, but that gets into appraisal values,
etc.
There can be fines if a Form 709 is not filed in a timely manner, but that
is something your parents, etc. would have to address.
There are further complications that could arise with the possibility of
tax implications with Costa Rica for the four brothers (again, outside the
scope of your original question) for the sale of the property, and other
complications if there was house rental paid to the four brothers, etc.
So, yes, the initial gift, if under (depending on the date) $10,000/$11,000
per donee, would have no gift tax, as it would be under the exemption, so no
problems with donor/donee payments there.
Also, yes, if your grandmother, under power of attorney, sells the property,
then the money could deposited to her account first, and then dispursed to
the four brothers through wire transfers, certified checks, money orders or
whatever form needed.
For the IRS, the four brothers might want to have a copy of the original
house purchase record which would show that the property was purchased by
the parents for the amount that was paid, and shows it being placed in the
names of the four brothers. That would establish the gift amount and the
cost basis for any gains.
The four brothers might also want a copy of the sale documents, in turn to
show the cost basis for any gains. Expenses for the sale of the property
might be deductible. In fact, the initial closing costs on the purchase of
the property might be deductible in the adjusted cost basis of your home
when it is sold, but again, this is all way beyond the scope of your original
question.
Looking Forward, denco-ga - Google Answers Researcher
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Clarification of Answer by
denco-ga
on
11 Feb 2005 13:27 PST
Howdy mcgrofo-ga,
Also, it might matter if your parents are US citizens. As well, if there
has been a loss (the price paid for the house, hence the gift value, was
more than the sell price) on the property, the four brothers might be able
to claim a loss on the sale of the property.
Looking Forward, denco-ga - Google Answers Researcher
|
Request for Answer Clarification by
mcgrofo-ga
on
11 Feb 2005 23:27 PST
denco-ga,
Your answer has been more than I expected. Thanks for answering the
rest of my questions so far. The hypothetical example you provide does
more than enough to answer all my questions. I'll have to get more
details to completely "technically" find out what should be the
outcome of this, but I am already satisfied with your answer. I'd like
to rate it already and would only like to keep looking into this as
this is a really fun matter. The fun part is that I can throw in even
more complications to the situation.
If I rate this answer will the issue be closed and would we not be
able to follow up on it here? Would you like to keep following up on
this issue until we get to the bottom of this? :) It's OK if you say
no. I'll post my resolution on my blog.
Anyway -- the fun part is that the Costa Rican Colon (ISO symbol,
'CRC')has been devaluating constantly at a rate of 40 colones / year
Vs the US Dollar.
http://finance.yahoo.com/currency/convert?from=USD&to=CRC&amt=1&t=2y
So, using your example, say the house was purchased for 10 million CRC
in 2001. Well the value of the house in 2001 in Dollars would not have
been $21,593.60, or $5398.40 split four ways as you said! We'd have to
get the value of the Dollar at that time! I found an estimate that
says in 2001 the Dollar was worth 329 CRC.
http://www.bankintroductions.com/costarica.html
This gives us $30,395.13, a considerable difference of +$8,801.53 from
your results, which when divided by 4 gives $2,200.38. Now, since the
house was sold for 11 million CRC in 2005 @ $23,752.96 and $5,938.24
each, in this example there would have been a loss of -$6,642.17
(-$1,660.54 each) !!
Here's the review of this example:
Original value: $30,395.13
Sell value: $23,752.96
---------------------------
Difference: $ 6,642.17
Of course, then you'd have to get how much has been has been gained
from rent. Well I've never seen a penny from this rent, nor have my
brothers. I also don' t know much much the house was rented for. To
cancel out the loss iwith any gains from rent the rent would have to
be at least $138.00/month. And of course, rent always changes through
the years...
Anyway, going back to your questions:
- What was the purchase date for the house?
I don't know. I'll have to find out!
- What was the purchase price?
I don't know. I'll have to find out!
- Was there rent, etc, collected from the property?
Yes but we never really saw any of that, I'll also have to find out
how much was charged for rent.
- What was the sale date?
Sale date was yesterday :)
My intuition tells me that any possible gain in value in Colones may
actually have been lost due to the devaluation of the currency. Also,
since the amount is always split by 4 I'm also sure the gain is too
minimal to even seriously IRS would want it reported. In fact, the
funny thing is I think the house was orignally purchased about 35
years ago so I think this is actually more of a loss than gain.
I'm going to try to get the details of the purchase/ownership transfer dates/etc.
This is fun :)
Thanks, let me know if you just want to close this.
|
Clarification of Answer by
denco-ga
on
12 Feb 2005 12:56 PST
Howdy mcgrofo-ga,
Well, I don't get paid until you do close the question, so yes, that would
be a nice thing to happen.
We can still continue a dialogue after the question is closed and that is
no problem for me as this is fun for me as well.
If the four brothers did not get any of the rent, or the rent did not pass
through their hands in any way, then I would not think there would be any
tax liability for that.
The depreciation of the CRC doesn't really matter except that the sales
price of the property might have been less than the purchase or gift value of
the property. The value in USD of the property at the time of the purchase,
the gifting and the sale of property are the numbers that are important.
Here are the issues that you want to consider, with the new information in
hand.
- The original purchase price of the property.
This is one point to figure the tax basis.
- The value of the property when it was "gifted" to the four brothers.
This is another point to figure the tax basis.
- The date the property was gifted to the four brothers.
This is the point to figure the gift tax, if any. For instance, prior to
1982 the gift tax exclusion was $3,000 per donee.
- The value of the property when it was sold.
This is another point to figure the tax basis.
Here are two more hypothetical scenarios for you.
Scenario A
- The property was purchased in 1970 for $32,000.
- The property was gifted to the four brothers in 1995 and an appraisal at
the time priced it at (or equal property was being sold for) $28,000.
- The property was sold in 2005 for $24,000.
Scenario B
- The property was purchased in 1970 for $32,000.
- The property was gifted to the four brothers in 1995 and an appraisal at
the time priced it at (or equal property was being sold for) $36,000.
- The property was sold in 2005 for $24,000.
This TurboTax web page points out the differences between the two scenarios.
http://www.turbotax.com/articles/TheGiftTax.html
"However, if he receives the property as a gift from you, his tax basis is
whatever your tax basis was. And if he sells the property at a loss, the tax
basis becomes the lower of your basis or the fair market value on the date of
the gift."
- In Scenario A, you have a $4,000 loss split four ways, for $1,000 each.
- In Scenario B, you have a $8,000 loss split four ways, for $2,000 each.
You are right that if there is a loss, then the IRS probably won't mind if
you don't ask for it, but if you itemize then the $2,000 loss might come in
handy at tax time. If there was gain, no matter the amount, then the IRS
will no doubt be interested.
Looking Forward, denco-ga - Google Answers Researcher
|
Clarification of Answer by
denco-ga
on
13 Feb 2005 13:09 PST
Apologies mcgrofo-ga, but I misspoke when I said I don't get paid until you
close the question. I meant to say you don't get to rate the question until
you close it. Regardless, I will be more than happy to continue the process
of analysis of your situation as more details are discovered, closed or not.
Looking Forward, denco-ga - Google Answers Researcher
|
