Can an Adult Child Gift Parents Money and Use It as a Tax Deduction?

If you help them out enough, you can claim them as dependents.

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As adult children get older, some want to give back to their parents for all their parents have done for them throughout their lives. Even if you’re gifting from the heart, few people would complain if it allowed them to take an additional tax deduction when they filed their return. However, an income tax deduction isn’t the only thing to think about. Giving money to your parents could also trigger gift tax consequences.

Tip

You can’t deduct money you gift to parents. Taxes could be due, however, because of the federal gift tax.

No Deduction for Giving Parents Money

You can’t claim an income tax deduction for money that you gift to your parents, even if they need the money. The charitable income tax deduction isn’t available for contributions to individuals under any circumstances. Worse, depending on the amount when you’re giving parents money, you’re making a taxable gift. However, because of various exclusions, it’s unlikely that you’ll actually have to pay any gift taxes on your gift to parents.

Annual Exclusion Reduces Gift Taxes

The tax code contains an annual gift tax exclusion that allows you to give a certain amount of money to each person before you even have to file a gift tax return. If you are giving money to both of your parents, you can give that annual exclusion to each parent without having to file a return. If you give more than the annual exclusion, you will start using part of your lifetime exclusion before you actually have to write a check to the IRS. Only after you give all of the lifetime exclusion will you owe money for gift taxes.

2018 Gifting Limits Increase

In 2018, the annual exclusion has increased by $1,000 to $15,000 per person. So, that means you could give each parent $15,000, for a total of $30,000 per year before you have to file a gift tax return. If you give more than that, you start to use your lifetime exclusion, which is $11.18 million in 2018. For example, if you wrote your mom a check for $95,000, the first $15,000 would be covered by the annual exclusion, and then you would use $80,000 of your $11.18 million so you would only have $11.1 million to use on future gifts or at your death.

2017 Gifting Limits

In 2017, you can give up to $14,000 to any person each year before you start dipping into your lifetime exclusion. In addition, prior to the Tax Cuts and Jobs Act, the limits for the lifetime exclusion were much lower. The lifetime exclusion was only $5.49 million per person. However, it’s still unlikely that most people will ever come close to burning through gifts of that amount during their lifetime.

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About the Author

Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."


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