Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

April 9, 2013
What are tax implications in gifting funds from the sale of my home?

Q: As an unmarried trustee for a small (approximately $1 million) family revocable trust, I am considering a long-term relationship with a widowed friend, who also possesses a family trust. We wish to maintain separate trusts. Predictably, my home is the major asset in my trust -- with the remainder being CD's, annuities and cash.
What are the tax implications if I wish to sell my house and distribute the proceeds among my five children as part of their inheritance? I understand that the IRS has a $14,000 per year gift consideration, but what if I choose a larger amount, say $100,000 per child? Help.

Bill, Lincoln

A: You are absolutely correct that you can gift up to $14,000 per year to each of your children (and their spouses and to your grandchildren, if you wish), without having to file a federal gift tax return.
If, however, you gift anything in excess of that amount to a recipient, federal law requires you to file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
At the time you file the return, you do not pay any taxes and your estate will not be subject to a gift tax at the time of your death, unless you exceed the current maximum on taxable lifetime gifts, which is $5.25 million if you were to die in 2013. Note that the $14,000 per year annual exclusion amount does not count towards this $5.25 million lifetime exclusion.

Another tax consideration is whether there will be a capital gains impact resulting from the sale of your residence. If the gain on the sale of the residence is $250,000 or less, you are eligible for an exclusion from capital gains tax if you have owned and used the residence as your principal residence for at least two years out of the five years prior to its date of sale. Generally, you are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your principal residence.

In addition to the potential for capital gains tax, certain home sales are subject to a 3.8% Medicare tax for homes sold after January 1, 2013. If the gain on the sale of your home is more than $250,000, you may be subject to the 3.8% Medicare tax, depending on whether your adjusted gross income exceeds a threshold amount.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.

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