Recipient of large financial gift -- taxable income?

[idsman75]

Well, this is my first post. Please forgive me if this has been addressed before because I haven't navigated the site to search out the topic yet.

My mother just gave me a very large sum of money as a gift. It's not part of an estate inheritance. I received a bank money order in the mail from her yesterday for $250,500.00 which I immediately deposited in an insured account at the federal credit union a couple miles from where I work.

I've read the IRS website and understand that the person who gives the gift is responsible for the gift tax liability. I understand the concept of the lifetime gift tax exclusion limits.

I also read the following on the IRS website:

Property received as a gift, bequest, or inheritance is not included in your income. However, if property you receive in this manner later produces income, such as interest, dividends, or rents, that income is taxable to you. The income from property donated to a trust that is paid, credited, or distributed to you is taxable income to you. If the gift, bequest, or inheritance is the income from property, that income is taxable to you.

That tells me that this money that I received from my mother as a gift is not taxable income and will not increase my tax liability when I file my 2013 taxes. I have an appointment next week with the CPA that prepares my income tax paperwork so I'll get an answer there. However, in the meantime, I am left to wonder.

Will my income tax liability increase for the 2013 tax year because of this gift my mother gave me?

[idsman75]

Also from the IRS website:

No tax payable by the person receiving your gift or bequest. Generally, the person who receives your gift or your bequest will not have to pay any federal gift tax or estate tax because of it. Also, that person will not have to pay income tax on the value of the gift or inheritance received. However, covered gifts or bequests received from expatriates after June 16, 2008, may be subject to tax which must be paid by the recipient. Consult a qualified tax professional for more information.

Am I reading this right?

[GrimJack]

Your 2013 liability will increase with the earnings from the gift not the gift itself is how I read that. At 1% in the bank the gift will earn $2,505 which you will receive a 1099int for in 2014 for your 2013 filing. Since money is fungible, I would max out your 401k/403b and your IRA contributions and replace the lost(?) income from the gift. Since you will be 'replacing' the income that is contributed, you might as well contribute to Roth after tax accounts. The ex-Mrs. Grimjack and I have discussed this many times over the last 5 years so if I make some logic jumps that you don't understand, let me know.

[idsman75]

Your 2013 liability will increase with the earnings from the gift not the gift itself is how I read that. At 1% in the bank the gift will earn $2,505 which you will receive a 1099int for in 2014 for your 2013 filing. Since money is fungible, I would max out your 401k/403b and your IRA contributions and replace the lost(?) income from the gift. Since you will be 'replacing' the income that is contributed, you might as well contribute to Roth after tax accounts. The ex-Mrs. Grimjack and I have discussed this many times over the last 5 years so if I make some logic jumps that you don't understand, let me know.

I absolutely appreciate your advice. I'm in the military so I participate in the TSP which has the same contribution rules and tax deferment as the 401(k). I already max out my Roth and contribute some to the TSP. Because this money came from a history that I won't put out on the internet, I had planned on leaving it in the Credit Union account for a year or so before deciding where or how to invest it. Now that you mention it though, it might be wise to go ahead and max out the TSP account and replace the income with the gift.

I stopped in to sign my 2012 tax paperwork today and mentioned it to the CPA. The CPA who has a phenomenal reputation in the state of Georgia said, "You'd better make an appointment. You'll probably have to declare it on your 2013 income tax filings." That didn't jive with me. My brother received the same amount from mom. He spoke with a friend of his in the private wealth management industry who also brokers benefits packages to companies for their employees. He told my brother it would not increase our tax liability.

I like the idea that you gave me though. I'll talk it over with the CPA during my appointment next week and see just how much it would take to bump me down to the next tax bracket.

Thank you!

[UnknownXV]

You know you can contact the IRS directly? It seems to be the safest bet by far, especially when you're dealing with such large sums of money. It may require you waiting on hold for a while, but that's a small price to pay.

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