Daughters-In-Law: Gifting Money To Your Mother-In-Law

Gifting money within a family can be a tricky affair, especially when it comes to the legal and tax implications. In the United States, the IRS allows individuals to give away a certain amount of assets, including cash, tax-free every year. This amount is $18,000 per individual in 2024, and a gift tax is only triggered if the giver has given away more than $13.61 million throughout their life beyond the annual exclusion. In India, if an individual receives a gift of more than Rs. 50,000 in a previous year, the amount exceeding Rs. 50,000 is taxable as Income From Other Sources. This raises the question: can a daughter-in-law gift money to her mother-in-law without triggering tax liabilities, and if so, what is the limit?

Tax-free gifts from daughter-in-law to mother-in-law

In the context of gifts from parents to children, the regulations are considerate of the familial bond and cultural practices. While the tax laws have evolved, the essence has remained – genuine gifts, especially within the immediate family, should not be burdened with tax implications. In the United States, the IRS allows you to give away a certain amount of assets – from real estate and stocks to cash – free of taxes every year. This annual gift exclusion renews every year and allows you to give $17,000 to as many recipients as you want in 2023 and $18,000 in 2024. This means that a mother-in-law can gift her daughter-in-law up to $18,000 in 2024 without having to pay taxes on the transfer.

Gifts above the annual exclusion count against your lifetime exemption limit, which rises to $13.61 million in 2024 from $12.92 million in 2023. So, in theory, a mother-in-law could gift her daughter-in-law up to $13.646 million in 2024 if her entire exemption was intact. If you want to give more than the annual exclusion limit, you can still do so, but any individual gift that exceeds this annual cap simply counts against your lifetime exemption. For example, if a mother-in-law gifts her daughter-in-law $60,000 in 2024, her gifts would be $42,000 over the annual exclusion, lowering her lifetime exemption from $13.61 million to $13.568 million.

In India, the regulations are slightly different. Gifts received from any person or persons exceeding Rs. 50,000 in any previous year are taxable as Income From Other Sources in the hands of the individual. However, gifts from a father to his daughter on the occasion of her marriage are entirely exempt from tax, as are gifts in the form of immovable property, jewellery, shares, or bonds. Additionally, if a daughter inherits property or money from her father, either through a will or due to succession laws, such gifts are also exempt from tax. It is important to note that while these exemptions provide relief from tax, it is crucial to maintain proper documentation for all significant gifts.

Tax implications for mother-in-law

In the United States, the Internal Revenue Service (IRS) allows individuals to gift a certain amount of assets annually without incurring taxes on the transfer. This is known as the annual exclusion or annual gift tax exclusion. For the year 2024, the IRS set the annual exclusion limit at $18,000 per individual recipient. This means that a mother-in-law can gift up to $18,000 to her daughter-in-law without having to pay taxes on the transfer. Similarly, if the mother-in-law's spouse also gifts money to the daughter-in-law, they can jointly give up to $36,000 ($18,000 each) without triggering gift taxes.

It is important to note that the annual exclusion limit renews every year, allowing for continuous tax-free gifting within the specified limits. Additionally, the amount that can be gifted tax-free over one's entire lifetime, known as the lifetime exemption, is significantly higher. In 2024, the lifetime exemption limit is $13.61 million, meaning an individual can give away up to this amount during their lifetime without incurring gift taxes.

If the mother-in-law gifts an amount above the annual exclusion of $18,000, it will count against her lifetime exemption. For example, if she gifts $20,000 in a year, it exceeds the annual limit by $2,000, reducing her lifetime exemption by the same amount. However, it is still tax-free as it is within the lifetime exemption limit.

Gifts that are not considered taxable gifts include those that fall within the annual exclusion, tuition or medical expenses paid for someone, gifts to a spouse, gifts to political organizations, and gifts to qualifying charities.

Annual gift exclusion limits

In the United States, the annual gift exclusion limit is the amount of money that can be transferred from one person to another as a gift without incurring a gift tax or affecting the unified credit. This annual gift exclusion can be transferred in the form of cash or other assets, such as stocks, land, or a new car. The annual exclusion amount is set by the Internal Revenue Service (IRS) and is typically increased each year to account for inflation.

For 2023, the annual gift exclusion limit was $17,000 per individual, meaning a person could give $17,000 to as many people as they wanted without paying a gift tax. For example, a person could give each of their five grandchildren $17,000 apiece in a given year, for a total of $85,000, without incurring any gift tax. This amount is separate for each recipient, not the sum total of all gifts given by the donor.

In 2024, the annual gift exclusion limit increased to $18,000 per individual. Similar to the previous year, a person could give $18,000 to as many people as they wanted without paying a gift tax. For married couples, the limit is $18,000 each, for a total of $36,000. This means that a couple could give their daughter and son-in-law a total of $36,000 ($18,000 to their daughter and $18,000 to their son-in-law) without paying any gift tax.

It is important to note that exceeding the annual gift exclusion limit does not automatically trigger a gift tax. Instead, the excess amount is subtracted from the donor's larger lifetime gift tax exclusion limit. For example, if a person gives their brother $50,000 in 2024, they would exceed the annual exclusion limit by $32,000. This excess amount would simply count against their lifetime exclusion limit, and they would need to file a gift tax return the following year.

The lifetime gift tax exemption was $13.61 million for 2024, increasing from $12.92 million in 2023. This amount is per person, so married couples can exclude double that amount, or $27.22 million, in lifetime gifts. However, in 2026, the exclusion amount is expected to revert to its pre-2018 level of about $5 million per individual, adjusted for inflation.

Lifetime gift exemption limits

Gifting money to family members is a great way to help them financially, especially when it comes to significant expenses like a wedding, honeymoon, or down payment on a house. It is also a strategic way to reduce your taxable estate and preserve your lifetime gift exemption. This strategy is particularly useful for the wealthy, as it helps to reduce the size of an estate and avoid federal estate tax.

In the United States, the Internal Revenue Service (IRS) allows individuals to give away a certain amount of assets each year without having to pay taxes on the transfer. This is known as the annual gift tax exclusion or the lifetime gift exemption limit. For 2024, an individual can give up to $18,000 per recipient without incurring any gift tax. This means that a married couple could give a total of $36,000 to another married couple without having to report it to the IRS. It is important to note that this exclusion renews every year, and any unused amount does not roll over.

The annual gift exclusion amount is subject to change and tends to increase over time. For 2025, the annual gift tax exclusion is expected to increase to $19,000 per individual. It is always a good idea to check the current year's exclusion amount to ensure accurate planning.

If you give away more than the annual exclusion amount, you will need to report it on a gift tax return (IRS Form 709). This does not necessarily mean you will owe gift tax, but it will count against your lifetime gift exemption limit. For 2024, the lifetime gift exemption limit is $13.61 million, which means you can give away a total of $13.61 million throughout your life before triggering gift taxes. This limit is also subject to change and tends to increase over time. For example, in 2025, the lifetime gift exemption is expected to increase to $13.99 million.

It is important to remember that the gift must be a complete and irrevocable transfer to qualify for the exemption. Additionally, the cost basis of the assets you gift will transfer to the recipient, so it is essential to carefully select the assets you gift to minimize potential taxes for the recipient. Consulting with a financial advisor or a tax and estate planning professional can help ensure that your gift and estate plans are well-informed and properly implemented.

Gift tax for cross-border transfers

In the United States, gift and estate taxes exist alongside regular income tax. The gift tax applies to non-US donors when they make a gift involving real or tangible property situated in the US. The US gift tax also applies to non-US persons who have US situs assets at the time of death.

The annual exclusion amount for gifts by a US citizen spouse to a non-US citizen spouse was US$148,000 for the 2016 tax year. This amount is only exempt from gift tax up to $147,000 for the 2015 tax year. The annual exclusion amount for gifts by a US donor to a non-resident donee is $15,000 per tax year.

In 2024, the IRS will allow individuals to give away up to $18,000 per individual without having to pay taxes on the transfer. This means that a single individual could gift a total of $36,000 to a couple without paying taxes.

In the case of cross-border gifting, it is important to consider the net worth of the client, the situs of their assets, applicable foreign transfer taxes, and long-term residence/domicile intentions as they relate to the United States.

In Canada, there is no gift tax. However, if a Canadian citizen receives a gift from a US citizen, they may be subject to US gift-tax rules.

Frequently asked questions