FIL gift tax question

I believe gifts are limited to 10k per year

Oh that makes sense. Good to know

I'm not a tax person, but I have Google.

FIL may want to hold on to some of the proceeds to pay capital gains tax on the sale of the rental property.

If FIL co-owned the house with a spouse, each of them can gift $15K (total of $30k) to each daughter per year and stay under the annual gift tax limit.

If he exceeds the limit, he has to file a gift tax form but probably won't actually owe any gift tax.

From nerdwallet:

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On top of the $15,000 annual exclusion, you get an $11.58 million lifetime exclusion (in 2021, that rises to $11.7 million). And because it’s per person, married couples can exclude double that in lifetime gifts. That comes in handy when you’re giving away more than $15,000.

For example, if you give your brother $50,000 this year, you’ll use up your $15,000 annual exclusion. The bad news is that you’ll need to file a gift tax return, but the good news is that you probably won’t pay a gift tax. Why? Because the extra $35,000 ($50,000 - $15,000) simply counts against your $11.58 million lifetime exclusion. Next year, if you give your brother another $50,000, the same thing happens: you use up your $15,000 annual exclusion and whittle away another $35,000 of your lifetime exclusion.

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LINK

For $318,000 he needs a consult a CPA. One consultation for $300 would be money well spent here.

He has multiple options, but as said each person can gift each person the yearly gift amount. So a husband and wife can gift their daughter and son in law 4x that amount. There’s som other options also, but easiest way would be to do it over 2-3 years.

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FIL may want to hold on to some of the proceeds to pay capital gains tax on the sale of the rental property.

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Came back to add this. Good catch not to forget capital gains. Not sure how that works with depreciation on rental.

Might have been better off holding property and passing along as inheritance with stepped up basis to avoid capital gains but what's done is done and he gets to see kids enjoy the money this way and not worry about losing rental later due to medical bills etc...

If kids don't need the $ now it may be possible to do a 1031 exchange if he is interested in remaining a landlord. 45 days to find a like kind property and close within 180 to defer capital gains.

Yikes, just saw recapture of depreciation is at regular income tax rates. FIL may be in for a hefty tax bill especially if he already has a decent income. (Likely if he is just gifting $300k all at once)

Interesting. It says you can claim all 100k but you have to fill out a form with the IRS and probably don’t have to pay taxes

Probably/IRS. Hmmm

Could the OP have his FIL and MIL (if there is one) give the daughter and the OP each 15k a year with no gift tax problems. So 15k from FIL and MIL to daughter is 30k and 15k from FIL and MIL to OP is 30k. 60k total transferred in one year with no gift tax issues. That is how it works in 529 plans. 15k from each parent to the child for 30k max in a year with no gift tax implications.

Your wife is going to get 100K and that's it. No tax implications for her.

Your FIL has tax implications on the sale, and has reporting (but likely not tax due) on the gift.

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Rules seemed to be about as clear as mud. Spoke to 4-5 people in the mortgage and/or tax industry. Read 5-6 articles on it. Still unsure what tax implications are going to be if any

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FIL will have capital gain and depreciation recapture on the sale. If FIL has any suspended losses from that rental, they will be released in the same tax year as the sale.

Second issue

FIL will likely have to file a gift tax return and will use some of his lifetime exemption.

Gift recipient (OP's wife) has no issues on the receipt of the gift.