Explaning the give and take of federal gift tax

Dear Liz: We are planning to build an addition to our home so that my mom can move in with us and will take out a loan to pay for it. Let’s say that we put down $50,000 and take out a loan for the remaining cost of $150,000. After the addition is built, my mom will

sell her house and with the proceeds she will give us $200,000 to pay for the cost of the addition. Is this considered a gift? Or is it considered payment for a place to live (i.e. she gets something in return), and therefore it is not a gift? What do you want it to be? If you want it to be a gift, then it certainly can be. If your mother wanted to give you the money all at once, she would need to file a gift tax return because the amount exceeds the $14,000 per recip

ient annual exclusion. But she wouldn’t need to pay gift tax until the amount she gives away in excess of the annual exclusion reaches a certain limit (which is $5.49 million in 2017).

Gifts in excess of the annual exclusion also affect how much of a wealthy person’s estate can pass tax-free to heirs. If your mother is worth more

than about $5 million, she should consult an estate planning attorney before making any gifts.

If she doesn’t want to bother with a gift tax return, she could give you and your spouse

$14,000 each, or $28,000, per year until she’s given the $200,000.

If you or your mother prefer to make payments over time and treat the money as rent,

you would need to declare the income. You could write off certain rent-related expenses, such as a portion of insurance premiums and repairs, that wouldn’t be deductible otherwise, plus you’d get another tax break from depreciating the portion of the property that’s considered a rental.

But that could trigger a big tax bill when you sell the home, so make sure you run this plan past a tax pro who can help you weigh the costs and benefits

Dear Liz: When I sat down with my accountant in March to do my 2017 taxes,

he said next year I will take the standard deduction. Are my contributions to charity

still deductible if I take the standard deduction?

No. Charitable contributions are an itemized deduction. If you don’t itemize your deductions, you won’t get the tax

break.

Congress nearly doubled the standard deduction as part of its tax reform. For married couples, the standard deduction is now $24,000, up from $12,700. The state and local tax deduc

tion was capped at $10,000. As a result, the proportion of taxpayers who will itemize their deductions is expected to drop from about 30 percent to 10 percent or less.

Dear Liz: A couple I’ve known for years recently

adopted 2-year-old twins.

Both will need considerable medical care, as they

were born to a drug-addicted mother. In sending out announcements, my

friends suggested sending funds for the twins’ medical needs, rather than toys. I took note and sent a check earmarked for their health care. My question is: Can I include the gift in my own medical deduction for this year’s income taxes?

No. Only medical expenses paid for yourself, your spouse

and your dependents typically qualify for the medical expense deduction on your income tax returns.

The expense isn’t a charitable deduction either. Contributions have to be made to qualified charities to be deductible, and individuals don’t qualify.