Can I Transfer Financing Of A Car To Another Person The Gift Tax – Give Until it Hurts – And it Will

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The Gift Tax – Give Until it Hurts – And it Will

It’s bad enough that the Federal government has the audacity to tax your family at 55 percent on the assets that you leave them when you die (assets that you have already paid income tax and capital gains tax on during your lifetime). You’d think that taking 80 percent of everything you have ever acquired would be enough. You’d be mistaken. Another tax, known as the gift tax, will tax you at a rate of 45 percent on any transfer of assets you make during your lifetime.

The gift tax excludes transfers between married couples as a husband and wife can transfer as much as they want to each other. How generous of the Federal government to allow you to transfer assets to a person whom you most likely already share ownership of the assets with.

Each year, any one person is permitted to transfer $13,000 worth of cash or assets to any other individual with no tax consequence. You can walk down the street and hand out $13,000 to every person you meet and you will be fine. However, every dollar you give to any one person above $13,000 will be taxed at 45 percent. If you want to buy your teenage son a car, and the car is valued at $20,000, you must fill out a gift tax form and pay the Federal government $3,150 in taxes for that year.

If you want to buy a house for your daughter as a wedding present, and the house is valued at $150,000, you will owe a gift tax of $61,650. Even if you are paying for the house monthly, via a mortgage, the Federal government will not wait. You will owe the entire $61,650 for that year’s tax return.

Incidentally, an easy way to get around this particular event would be to purchase the house as an investment property for yourself and rent it to your daughter for $1,000 per month. Then, you could gift her $1,000 per month in rent and avoid any taxable even as the total gift would amount to only $12,000 per year.

There are three primary exceptions to the gift tax rule. You can give as much money as you want to your spouse with no taxable event taking place. A husband and wife can transfer billions of dollars between each other and the government will not care. This allows us to transfer assets for the purpose of estate planning. You can also give as much money as you want to a legitimate IRS-recognized charitable organization which has filed a Form 501(c)(3) and been approved as such.

The third exception to the gift tax is that you can donate money or assets for the purposes of legitimate education expense or legitimate medical expense. Many older people are able to successfully reduce their pending estate tax by providing their grandchildren with college educations through 529 plans or Prepaid College Programs.

The gift tax is a nasty tax in that it levies a penalty on being generous. There are many ways to limit the amount of gift tax you will be asked to pay during your lifetime. Only a few of those ways were briefly touched on in this article. For a full rundown of all the ways in which you can limit the taxes you pay during life and after death, you should consult with a trained Florida estate planning attorney.

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