Hi, this year, I have made and contributed about 40,000$ for my brother who lives abroad in much lower living standard toward his apartment purchase. WEll, entire apartment purchase. I was wondering if there is any tax deduction is possible? I did in a rush without thinking about any tax benefits and now thinking only in hindsight. Potential complications for any possible eligbility for deduction include follow: - wire transferred the fund (proof available) - purchase is made in foreign country, far off central asia - any proof of transfer within the foreign country is in foreign language, therefore may need to be notarized. - proof of purchase is in foreign language (title/deed of the apartment), therefore may need to be notarized. With me filed many times 1040 in the past, I dont remember any deductions for this situations in itemized deduction in simple 1040, perhaps I can consult the tax professional for any potential tax provision? THanks.,
You are taxed, not given a deduction, for gift contribution. It's called "gift tax" and it's considered a tax-free gift and you may not deduct it on your tax return. For 2020, the gift limit is set at $15,000.
Tax deduction for what? Benefitting your family? Why? And why would anyone pay tax at all if we all could just shuffle money to our family members and get full tax deductions. I would move that money around 5 times before I end up with so many deductions that it adds up to my entire tax gross payment. No, deductions only for RECOGNIZED charitable organizations. You can actually look that up quite quickly in the tax code.
Incorrect. Unless you have already given away around 11.4 million dollars (as of 2019) you don't have to pay any gift tax at all. Look it up.
Hmm, that's kinda of impressive. We're you a lawyer or something? Not many people know how it actually works.
That's over the course of your ENTIRE lifetime, not up to the present. Gifts made each year in excess of the $15,000 annual limit per recipient reduce your federal estate tax exemption when you die. For instance, let’s say you give your grandson a gift of $25,000 in a year. The first $15,000 is not taxable because of the annual exclusion. After that, though, the remaining $10,000 counts against both your lifetime gift tax exemption and your federal estate tax exemption. Now, when you die, your federal estate tax exemption will be $11.48 million. All money in excess of that will be subject to estate taxes. Source: https://smartasset.com/retirement/lifetime-gift-tax-exemption
As long as you are under the accumulated 11.4mil at point in time x you don't pay gift tax at any point in time x. It's really that simple.
Sorry, dude, that's not quite complete. The $11.58M is a lifetime exemption. The annual exclusion is $15K. And none of this has to do with income taxation. Legally the OP is required to file a Gift Tax return for this year for any amount he gifts to any one person above the annual exclusion. Normally, to get around this a husband and wife each gifts the full $15K to, for example, their child and also his/her spouse; thus $15K x 4 = $60K is transferred from one household to the other, free of gift tax and free from being counted towards one's lifetime exemption. So, any non-excluded amounts are tallied over your life, and then if you die with a total estate-plus-previous-non-excluded-gifts amount less than the lifetime exemption, then your estate will pay no estate tax. The exemption is currently kinda big, but back when I was doing this stuff for real, the exemption equivalent was only $600K. Does the IRS catch people who don't file gift tax returns? Sometimes (especially if they're auditing you for something else). Are there penalties? Yes. Final comment.... a seed planted that may sprout in your mind if you're nearing death with an estate worth, say, $20M. Key point: The gift tax is "tax exclusive", while the estate tax is "tax inclusive". Imagine the tax rate is 50% (for ease of calculation), and assume you've already gifted away $11M during your life (i.e., you've used up your exemption). Imagine you want a loved one to end up with $10M. If you gift that person $10M while you're still alive, then you owe $5M in gift tax; and you're left with $5M. But if you wait until you die, then the estate is still worth $20M, and the estate tax is $10M.... that is, you are taxed on the whole estate. Thus your loved one receives $10M but there is nothing left over. Food for thought. My 2 cents.