Overview

Main Menu Name: Net Gift

This calculation determines the tax on a net gift as well as the tax reduction that results from the net gift (because the donor has made a smaller gift).

In this article:

• Background
• Getting Started
• Entering Data
• Results

Background

This calculation determines the tax on a net gift as well as the tax reduction that results from the net gift (because the donor has made a smaller gift).

A net gift results when the donee agrees to pay the gift taxes on the transfer because the amount of the gift is reduced ("netted") by the gift tax to be paid by the donee. Net gifts are good ways of transferring property when:

• The donor does not have sufficient liquid assets to pay gift taxes and does not want to sell other property to raise cash.
  
  
• The donor wants to limit the gift to its net value.

Those considering net gifts must consider both gift tax and income tax implications.

The gross amount of the gift is reduced by the amount of the gift tax paid by the donee.

The gift tax is then computed on the remaining or net amount of the gift.

For income tax purposes, a net gift is considered partially a sale and partially a gift. A taxable gain results when the gift tax paid by the donee exceeds the donor's basis in the property.

Getting Started

A net gift results when the donee agrees to pay the gift taxes on the transfer because the amount of the gift is reduced ("netted") by the gift tax to be paid by the donee. Net gifts are good ways of transferring property when:

• The donor does not have sufficient liquid assets to pay gift taxes and does not want to sell other property to raise cash.
  
  
• The donor wants to limit the gift to its net value.

Those considering net gifts must consider both gift tax and income tax implications.

The gross amount of the gift is reduced by the amount of the gift tax paid by the donee.

The gift tax is then computed on the remaining or net amount of the gift.

For income tax purposes, a net gift is considered partially a sale and partially a gift. A tax gain is achieved when the gift tax paid by the donee exceeds the donor's basis in the property.

The gift tax calculations take into account the changes in rates and credits provided by the Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010, the American Taxpayer Relief Act of 2012, and the Tax Cuts & Jobs Act of 2017.

Entering Data

1. Year of Gift Enter the year in which the gift was made. Valid year inputs are 1987 and later.
   
   
2. Taxable Gift (Before Tax) Enter the amount to be given to the donee after taking into account any annual exclusion, but without any reduction for the gift tax to be paid by the donee.
   
   
3. Prior Taxable Gifts Enter the total amount of all taxable gifts made in prior years.
   
   
4. Unified Credit Used by Prior Gifts Enter the total amount of unified credit used by the taxable gifts in prior years.
   
   
5. Spousal Unused Exclusion Enter the amount of any "deceased spousal unused exclusion amount" to which the decedent/donor is entitled by reason of the death of a spouse after 2010 whose estate tax return did not use up the full unified credit exclusion amount. Click on the computer icon to the left of the entry field to calculate the maximum exclusion amount for the year of the spouse's death, taking into account the inflation rate entered for the exclusion.
   
   
6. Inflation Rate for Exclusion Enter the rate of inflation to be applied to increase the unified credit exclusion amount in future years.
   
   
7. Sunset in 2026? Selects how future estate tax calculations will be handled.

Results

The program shows the value of the taxable gift after reducing the gift by the gift tax to be paid by the donee, as well as the calculation of the amount of tax owed by the donee on the gift received.

The results also show the calculation of the gift tax on the original amount of the gift, without the reduction for the gift tax to be paid by the donee, and the reduction in the gift tax that results from the smaller gift.