It’s great to receive, I don’t care what they say. It’s good to give as well, but that’s a topic for another day. The question I get a lot about receiving a gift from a relative or friend, or an inheritance or bequest from a passed family member, is “Do I have to pay taxes on this?”
The answer depends on the circumstances – who gave, what did they give, why did they give? But by far the most common situations that I see (life insurance proceeds, gifts by will or bequest, or outright gifts of property from parents or family members) don’t normally require the receiver of the gift to pay income or gift taxes.
Although, there might be taxes on later transactions for the recipient – like when an asset is sold later, there may be capital gains tax due. And in rare cases, if someone makes a gift to you and they are unable to pay the gift tax that might be due, the IRS might hold you accountable for paying that tax. This is rare because of the high exemption amount that’s available to a person in their lifetime – it’s now over $12 Million. That means that although a person that gives a gift is responsible for any gift tax (not the recipient) they still may not actually have to pay any. They may be required to file a gift tax return, but they can claim their lifetime exemption and not owe any tax unless they’ve given more than $12.92 Million in their lifetime, to be precise. There are also other exclusions and exemptions available to a giver, depending on the way the gift is given and who it is given to.
So, receive thankfully. And if giving gifts to your family or charitable causes is something you want to do, always check with your accountant and a qualified financial planner – preferably a Certified Financial Planner. There are many ways to minimize the tax ramifications and maximize the effectiveness of your giving, and knowledgeable advisors can help you explore all of the possibilities.