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If I receive a gift of $85,000 from my sister towards the purchase of my house, will I have to pay taxes on the gift? How does the tax apply to the gift and how can I minimize any potential tax burden?

The IRS does not consider gifts to be taxable income, so a $85,000 gift from your sister for a house down payment is not subject to income tax.

Your sister may need to file a Gift Tax Return (Form 709) with the IRS if the gift exceeds $15,000 (2022 exemption amount), even though no tax is owed.

The lifetime exemption amount for gifts is $12.06 million in 2022, and your sister may need to pay gift tax if she has exceeded this amount.

As the recipient of the gift, you do not need to report the gift as income, and you will not owe any taxes on it.

You will still need to report the gift on your tax return, and it's essential to keep records of the gift, including a letter from your sister stating the amount and purpose of the gift.

If you eventually sell the house, you may be subject to capital gains tax on any profit made from the sale, but this is unrelated to the gift itself.

Any one person can give a gift of $15,000 or less to another individual without incurring gift tax.

As of 2022, you could give up to $16,000 to any one person without incurring the gift tax.

If you're married and file a joint return, you and your spouse can jointly gift up to $32,000 to a child or other family member.

There are no restrictions on how many people you can make gifts to each year.

The gift tax rates are progressive, ranging from 18% to 40%, depending on the total cumulative taxable gifts made during your lifetime.

You can calculate the gift tax owed on a taxable amount after applying the annual exclusion and lifetime exemption.

Your sister can give up to $17,000 per person per year without taxes or paperwork; if she exceeds $17,000 per person, she may need to file a small amount of paperwork with the IRS.

Gift taxes are paid by the giver, not the recipient, so you won't owe any gift taxes on the $85,000 gift from your sister.

For 2024, federal gift tax only applies to amounts over $18,000 per individual per year or $36,000 for couples filing jointly.

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