Q&A: will we be taxed on gifting money to our son in the US?
US tax law is complex and the Internal Revenue Service will be on your case
The bottom line is that, in general, it is the donor who pays gift tax under US law
We are considering giving €50,000 to our son in the US to help buy a house. Will he be taxed on that and could you advise on the best way to transfer it?
Ms AH, Dublin The first thing to say about dealing with the dreaded IRS (Internal Revenue Service), the United States’ tax collection body, is that you need to get it right.
US tax law is complex to say the least but they expect taxpayers to be compliant and to make it their business to secure the necessary independent advice to ensure that.
It does provide some information on gift tax on its website but, as is the way of these things, none of it seems to address the particular position of people who are not resident in the United States making a gift to someone who is.
The bottom line is that, in general, it is the donor who pays gift tax under US law. This is very much along the lines that apply in the UK but very much at odds with the position in Irish law where the beneficiary is responsible for taxation issues regarding gifts and inheritances.
I am assuming, of course, that you are Irish citizens and based here rather than the US, as your address would suggest. As you probably know US citizens and resident aliens – ie, those such as your son – are liable to US tax on their income worldwide.
However, even “non-resident aliens” (charming way of putting it really), such as I understand you are, might still have a potential tax liability on the basis that you are gifting “tangible” property – a term that appears to include cash.
The good news, to my reading of the US tax code and I’m not an expert on that, is that any tax bill is rolled over to an end-life lifetime tot.
But I’m getting ahead of myself.
First up, you are entitled to gift $14,000 (about €12,610) each to your son without any worries about gift tax – it’s a bit like our small gift exemption only the figures are larger. If you split your $50,000 gift over two years, that exemption would cover the full amount with $6,000 to spare.
If, however, you do need to make the gift this year for some reason, each of you will probably have to file a Form 709 with the IRS in relation to the sum over $14,000 each of you is paying – ie, $9,000 apiece. This will then be totted up with any future gifts you make to your son over your lifetime.
Gift tax, when it falls due, appears to run at rates from 18 per cent (applicable up to $10,000) up to 40 per cent depending on the size of your cumulative gifts.
That’s my reading on it but, as I say, the US tax code is labyrinthine and, harking back to my opening line, it is important to remember that this is a reader service and not a professional opinion. It will do neither your son nor yourselves any good to quote this column should the IRS come after him. Given the scale of the gift, it might well be worth his while getting advice in the US.
Options for releasing equity in my home I’m 64 and still working. My wife is 63. I live in Dublin and my mortgage was completely paid off at least five years ago. The value of the house is around €350,000.
I have two children, one living in New York, and the other at home.
What is my best option, if any, of releasing equity on my house, possibly to help myself, my wife, and children out financially? Should I sell the house, and downsize to an apartment, or look to release equity on the property?
Mr SN, Dublin
Equity release used to be relatively easy in the boom years. Everyone was clamouring to give you money secured on the equity built up in your home , to receive payment when you sold it, or died.
Of course, it was never good value. People releasing equity in their home tended to be those who would not necessarily have income with which to pay off a bank loan. Equity release companies, knowing this, were able to charge a fairly swingeing premium in exchange for holding off on repayments for possibly a considerable time.
There are still horror stories emerging of people discovering they will have little or no equity left in their homes should they sell or look to bequeath a property.
Anyhow, equity release was one of the first victims of recession and it has been some time since I have heard of anyone offering or availing of a dedicated equity release product .
That said, there are obviously still ways to effectively release equity in your home. You say you’re still working. If that is a medium to long-term prospect, a bank may well agree to advance a mortgage loan on your property. However, if you are retiring in a year or so, that is less likely.
Clearly, they want to ensure they are paid so will need evidence of ability to pay. As a general rule, a lender will require any mortgage to be paid off at or ahead of retirement.
The other option raised – downsizing – is also possible but requires careful consideration. Especially if you are looking at retirement, you may be less able to settle in a new environment. There is no use giving your family a dig out at the expense of your own health and wellbeing – or that of your wife.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice.