Couple Is Allowed to Give Cash Gift of Less Than $20,000 Without Tax Problems

Q. If a husband and wife with an estate of less than $600,000 give gifts of cash of less than $20,000 per year to an individual, are they required to file gift tax returns? What if the gifts for some years exceed $20,000? In either instance is a gift tax actually payable?

--W.S.

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A. Here’s the rule: One person may give any other person up to $10,000 per year with no gift tax consequences or reporting requirements. A couple may give twice that amount under the same circumstances.

So, if you and your wife give cash gifts of $20,000 per year ($10,000 per spouse), no gift tax form is required. If, however, the gifts exceed that amount, you will be required to file a gift tax form with your income tax return, noting that you have exceeded the $10,000-per-person or $20,000-per-couple limit.

Will you owe a tax? Probably not. Why? Because the amount of the gift that exceeds the $10,000 or $20,000 limit will be deducted from the $600,000 exclusion that each taxpayer is allowed to pass on at death to his heirs. So, by exceeding your annual gift limit, you are only reducing the amount you can pass on, tax free, at death. However, once you exceed the $600,000 limit, whether in your lifetime or at death, taxes are assessed.

For estates under the $600,000-per-person exclusion level, there is no appreciable difference. The real difference here is to the recipient, who, we can assume, is happier to have your gift now rather than later. Presumably, as the donors, you reap some benefit from seeing, firsthand, the happiness your gifts generate.

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Q. I am thinking of selling my home and not buying a replacement residence. It is possible that I will sell at a loss. May I deduct this amount from my previous taxable gains on home sales?

--F.J.

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A. Losses sustained on the sale of a personal residence are not deductible on your income taxes under any circumstances. If you have carried forward gains from the sales of previous residences, those remain unchanged by the unfortunate occurrence of a residential real estate loss. This fact may give you reason to reconsider your inclination to sell.

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Q. My friend recently inherited a home from a friend. Because the home is bigger and better than the one she has, she wants to sell her home and move into the one she is inheriting. Will the home she has inherited qualify as a replacement residence and allow her to defer paying taxes on the home-sale profits she has accumulated over the years?

--G.S.

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A. Of course not. Your friend did not purchase the home she wants to move into; she inherited it. To qualify for the tax deferral given to replacement residences, a taxpayer must purchase a new home with the money he or she has made from the sale of the last.

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Q. In January, I won $8,500 at the track. Before paying my winnings, the track withheld 20% for income taxes. I told them I would have no tax liability for the year, even including my track winnings. But they insisted on withholding the tax and told me I could get it back when I filed my tax return next year.

By the time I get my tax refund, the government will have had my $1,700 for a full year. May I file a claim for interest that those withheld taxes would have earned if I had been allowed to keep them?

--K.W.

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A. When withholding laws were stiffened many years ago, Congress made it quite clear that winnings at racetracks and gaming tables were subject to income tax withholding. Congress wanted to make sure taxpayers did not “forget” to include their betting and gaming winnings when filing their tax returns. By taking its share first, the government made sure taxpayers would report winnings.

This puts the $1,700 withheld from your track winnings in the same category as taxes withheld from wages, investment sales and other income. Taxpayers who, for whatever reason, receive tax refunds are not entitled to receive interest on the money the government has used for the previous year.

Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail carla.lazzareschi@latimes.com