39.1 Gifts of Appreciated Property

Making a gift of appreciated property to a family member in advance of an anticipated sale can reduce the income tax liability for the family as a whole. By making a gift of interests in the property to several family members, it is possible to spread the profit and the tax among a number of taxpayers in the lowest tax bracket. Depending on the value of the property, you may or may not have to file a gift tax return (39.2).

However, the tax benefit of making gifts of property to younger family members has been cut back by the expansion of the “kiddie tax.” The kiddie tax (24.2) now covers most 18-year-olds and college students age 19 to 23.

Do not make a gift of investment property such as stock that has decreased in value if you want a deduction for the loss. Once you give the property away, the loss deduction is gone forever. Neither you nor your donee can ever take advantage of it. The better way is first to sell the property, get a loss deduction, and then make a gift of the proceeds.

Warning: The IRS may claim that the gift was never completed if, after sale by the donee, you control the sales proceeds or have the use of them.

Planning Reminder

Annual Gift Tax Exclusion

The annual exclusion (39.2) exempts from gift tax the first $13,000 of gifts of present interests to each donee during 2012. If your spouse consents on Form 709 to split your gifts, the exclusion for each donee doubles to $26,000. Any change to the exclusion amount for gifts made after 2012 will be reported in the e-Supplement at jklasser.com .

If you make gifts of present interests in trust for more than one beneficiary, each beneficiary is treated separately for purposes of the annual exclusion. Also, if you give a present interest in property to more than one person as joint tenants, the annual exclusion can be claimed for each donee.

- - - - - - - - - -