Quick Answer
In most cases, you do not have to report gifts of money or property you give to your parents on your tax return. The IRS does not require you to report gifts unless they exceed the annual gift tax exclusion amount, which is $16,000 for 2023. As long as your gift to your parents is below this threshold, you do not need to report it.
When Gifts to Parents Must Be Reported
You only need to report gifts to your parents if the total value exceeds the $16,000 annual exclusion amount. For example, if you give your parents $20,000 in 2023, you would need to report the amount over $16,000 ($4,000) on Form 709.
The $16,000 exclusion applies per recipient. So you could give $16,000 each to your mother and father without reporting it. If you are married, your spouse can also give $16,000 to each parent for a total of $64,000.
Gifts exceeding the annual exclusion that are not reported on Form 709 may be subject to the gift tax, which is paid by the giver.
Examples of Gifts to Parents
Here are some examples of gifts to parents and whether they would need to be reported:
– You give your parents $10,000 – No reporting required since it is below the $16,000 annual exclusion.
– You give your father $20,000 and your mother $20,000 – You would need to report $4,000 on Form 709 since you exceeded the $16,000 per recipient exclusion.
– You and your spouse give your parents $40,000 jointly – No reporting required since you stayed within the combined $64,000 exclusion for a married couple.
– Your parents pay your $8,000 student loan bill – Considered a gift and no reporting required since it is below the $16,000 exclusion.
– You make a $20,000 down payment on a home for your parents – The $4,000 over the $16,000 exclusion would need to be reported on Form 709.
When Gifts Are Not Taxable
There are some scenarios where large gifts to your parents would not be subject to the gift tax and would not need to be reported:
– Paying your parents’ medical bills – There is an unlimited exclusion for gifts made directly to medical care providers.
– Paying tuition for your parents – There is an unlimited exclusion for gifts made directly to a qualifying educational organization.
– Giving to a qualified charity in your parents’ name – There is an unlimited exclusion on gifts to charities.
– Political donations in your parents’ name – There is an unlimited exclusion for political contributions.
Requirements for Reporting Gifts
If you determine you do need to report a gift to your parents based on the above exclusions, here is what you need to do:
– File Form 709 – This is the Federal Gift Tax Return. It must be filed by April 15th the year after the gift was given.
– Provide your parents’ information – You will need to include their full names, addresses, Social Security numbers and your relationship to them.
– Report value of the gift – Provide the full dollar amount that exceeded the annual exclusion. Get an appraisal for gifts of property.
– Pay any applicable taxes – If you owe gift tax, it is due when you file Form 709. The current top gift tax rate is 40%.
Consequences for Not Reporting
If you fail to report a gift to your parents over the annual exclusion, there can be several consequences:
– Addition of gift tax – Any gift tax owed will be added to the amount you pay when caught. Penalties and interest will also accrue.
– Reduction of estate tax exclusion – Taxable gifts use up your lifetime estate tax exemption. Not reporting gifts can reduce your available exemption at death.
– Gift tax audit – Not reporting large gifts increases your chances of being audited and having to prove how funds were used.
– Fraud penalties – Willful attempts to avoid gift tax can potentially lead to criminal tax fraud charges.
Conclusion
Giving monetary gifts or gifts of property to your parents can be a kind and meaningful gesture. However, you do need to be aware of IRS reporting requirements for gifts over the annual exclusion amount. Keeping gifts under $16,000 per recipient will allow you to avoid the hassle of reporting. But for larger gifts, be sure to properly disclose them and pay any applicable gift tax to avoid penalties down the road.