Q: I have just been given $25,000 in currency from my reclusive father. This money has never seen a bank. Over the years he made small “deposits” in a box he kept in his apartment. He hates banks and thought his savings would make him ineligible for the low-income housing he enjoys today. How can I deposit this cash in my bank without drawing any inquiries that may point to my father? -- T. A. M .
A: Your story raises several legal and ethical issues, not the least of which is whether the facts are exactly as you recite them. Surely you must realize that a $25,000, largely untraceable, cash hoard would raise more than a few eyebrows in the law enforcement community. But our purpose here is not to challenge you but rather to explain the ramifications of the situation you face.
According to the letter of the law, there is absolutely no way your father can give you a $25,000 gift, in cash or by check, without reporting it to the Internal Revenue Service. Furthermore, you will be required to file a report to the federal government if you attempt to deposit the entire $25,000 in a single bank account.
However, from the outset, let’s be clear about one thing: Without addressing the issue of your father’s eligibility for low-income housing, your father did absolutely nothing illegal by accumulating $25,000 in cash and giving it to you. It’s within his rights to make such a gift, and it’s within your rights to accept it. However, both of you will have problems if you attempt to hide this transaction.
At the least, your father’s gift of $25,000 requires that he file a gift tax report with his income tax return. This does not mean that he must pay any taxes. In all likelihood, he need only report the fact that he made the gift. The amount of the gift will be subtracted from the $600,000 he can leave tax-free in his estate, but from the situation you describe, this should not pose a problem to your father. However, without knowing more, it is impossible to determine whether reporting this gift would trigger a reassessment of your father’s eligibility for low-income housing.
Your accepting a $25,000 gift requires no special filing with the government. However, if you attempt to deposit it as one lump sum in a bank, you will be required to complete what is known as a “currency transaction report,” a form banks require for all deposits of $10,000 or more. This type of reporting was imposed to crack down on money-laundering operations of organized crime members and drug traffickers. You could divide the money into smaller amounts and deposit them in three or more banks, but federal law allows banks suspecting such activity to launch a probe aimed at uncovering other cash bank deposits by the same person. These deliberately less-than-$10,000 deposits are officially known as “structured transactions.” However, law enforcement officials and criminal elements call the practice “smurfing,” after the tiny, blue TV cartoon characters best known for their frenetic antics.
By whatever name, such activities were outlawed in 1986 to help catch money launderers. The maximum penalty for smurfing is five years in prison and a $10,000 fine. Doesn’t hardly seem worth it just to get a gift from Dad, does it?
The IRS permits individuals to give another person up to $10,000 per year without reporting it. Depositing that amount of cash would also not trigger a reporting requirement on your part.
Community Property Is Reserved for Spouses
Q: In a recent column you wrote that couples holding property in joint tenancy can draft an agreement between them stating that these assets, while held in joint tenancy, are really community property. Will this sort of agreement work with property held among parents and children, or grandparents, parents and children? -- A.C.
A: No. Only property held between spouses is entitled to be treated as community property in states, such as California, that recognize community property. In all other cases, the property must be held in joint tenancy solely.
FAQs
Generally, the answer to “do I have to pay taxes on a gift?” is this: the person receiving a gift typically does not have to pay gift tax. The giver, however, will generally file a gift tax return when the gift exceeds the annual gift tax exclusion amount, which is $17,000 per recipient for 2023.
Do I have to report if my parents give me money? ›
There is typically a tax-free gift limit to family members until a donation exceeds $15,000 (jumping up to $16,000 in 2022). In these instances, the IRS is usually uninvolved. Even then, it can just result in more paperwork. At the federal level, assets you receive as a gift are usually not taxable income.
What happens if I deposit $25,000 in cash? ›
Depositing a big amount of cash that is $10,000 or more means your bank or credit union will report it to the federal government. The $10,000 threshold was created as part of the Bank Secrecy Act, passed by Congress in 1970, and adjusted with the Patriot Act in 2002.
Can my parents give me a large amount of money? ›
The IRS allows every taxpayer is gift up to $17,000 to an individual recipient in one year. There is no limit to the number of recipients you can give a gift to. There is also a lifetime exemption of $12.92 million.
Does the recipient of a gift have to report it to the IRS? ›
The Donor Is Responsible for Gift Reporting and Taxes, Not the Recipient. When it comes to reporting gifts and paying any taxes due, the burden falls on the person making the gift. The recipient doesn't have to do anything.
How does IRS know you gifted money? ›
The primary way the IRS becomes aware of gifts is when you report them on form 709. You are required to report gifts to an individual over $17,000 on this form. This is how the IRS will generally become aware of a gift. However, form 709 is not the only way the IRS will know about a gift.
Do cash gifts count as income? ›
Cash gifts aren't considered taxable income for the recipient. That's right—money given to you as a gift doesn't count as income on your taxes. Score! Everything from that $40 gift card to your favorite restaurant for your birthday to the $100 your friends pulled together when your tire blew out is yours to keep.
Can my parents gave me $100 000? ›
Can my parents give me $100,000? Your parents can each give you up to $17,000 each in 2023 and it isn't taxed. However, any amount that exceeds that will need to be reported to the IRS by your parents and will count against their lifetime limit of $12.9 million.
How to deposit a large cash gift? ›
A: Under federal law, large cash gifts are allowed, but be aware of IRS gift tax rules. Banks will report cash deposits over $10,000, so it's wise to notify your bank before making a large deposit. Ensure you have documentation regarding the origin of the gift to address any future inquiries.
Will I get audited for depositing cash? ›
The Bank Secrecy Act, which was passed in 1970, outlines what deposits need to be reported to the IRS. Banks are required to report cash into deposit accounts equal to or in excess of $10,000 within 15 days of acquiring it.
Banks must report cash deposits of more than $10,000 to the federal government. The deposit-reporting requirement is designed to combat money laundering and terrorism. Companies and other businesses generally must file an IRS Form 8300 for bank deposits exceeding $10,000.
How much cash can you deposit without explanation? ›
The report is done simply to help prevent fraud and money laundering. You have nothing to lose sleep over so long as you are not doing anything illegal. Banks are required to report when customers deposit more than $10,000 in cash at once. A Currency Transaction Report must be filled out and sent to the IRS and FinCEN.
Can my parents give me $30000? ›
At a glance:
Any gifts exceeding $17,000 in a year must be reported and contribute to your lifetime exclusion amount. You can gift up to $12.92 million over your lifetime without paying a gift tax on it (as of 2023). The IRS adjusts the annual exclusion and lifetime exclusion amounts every so often.
Can I give someone 25k? ›
Bottom Line. California doesn't enforce a gift tax, but you may owe a federal one. However, you can give up to $18,000 in cash or property during the 2024 tax year and up to $17,000 in the 2023 tax year without triggering a gift tax return.
Can my parents give me cash to buy a house? ›
You can use gift money for your entire down payment or just a part of it, but the exact breakdown of funds will depend on your loan and property type. If your down payment will be made with a gift, you should expect the lender to request the following documentation: A gift letter signed by you and the giver.
How much money can your parents give you without being taxed? ›
The basic gift tax exclusion or exemption is the amount you can give each year to one person and not worry about being taxed. The gift tax exclusion limit for 2023 was $17,000, and for 2024 it's $18,000. That means anything you give under that amount is not taxable and does not have to be reported to the IRS.
How much money can my dad give me tax free? ›
The annual gift tax exclusion is a set dollar amount that you may give someone without needing to report it to the IRS. The threshold is typically adjusted to account for inflation each year. The 2023 annual gift tax exclusion was $17,000, and the 2024 annual gift tax exclusion is $18,000.
Can a parent give money to a child tax free? ›
If you gift cash, generally there are no income tax consequences for the recipient, though there could be gift and estate tax implications to the donor. But if you give appreciated securities, the capital gains taxes can be significant. Also, note that the tax treatment varies widely depending on the recipient.
