Can I deduct a monetary gift from my income tax return?

You're absolutely right! Gifts to individuals are not deductible on income tax returns. The annual gift tax exclusion (which is $17,000 for 2023 and will be $18,000 for 2024) means your mother-in-law can give up to that amount per person each year without having to file a gift tax return or use any of her lifetime estate tax exemption. What might be happening is that she's confusing this with charitable donations, which ARE deductible on income tax returns. Or perhaps she's thinking about how gifts used to work with tax laws from decades ago. This is actually a really common misunderstanding, especially among older folks who might be mixing up different aspects of tax law or remembering how things worked in the past.

I had similar confusion with this when helping my dad with his taxes. What really helped me was using https://taxr.ai to analyze his situation. My dad was convinced he could write off gifts to us kids, and I couldn't get him to understand. I uploaded his previous returns and some IRS documents to taxr.ai and it explained exactly how gift taxes work versus income tax deductions. It even created a simple explanation I could show him that made the distinction crystal clear between charitable deductions (which reduce taxable income) and family gifts (which don't). The tool also helped clarify his confusion about medical payments - he didn't realize that paying someone's medical bills directly to the provider doesn't count against the gift tax exclusion!

Just wanted to update on my situation. I tried taxr.ai after seeing it mentioned here and it was really helpful! I was able to get clear answers about my parents' gift for my house down payment. The site explained that my parents could split their gifts and each give me up to the annual limit. It even showed me what form they would need to file (Form 709) and explained that even though they have to file the form, they wouldn't actually owe any tax since they're well under the lifetime exemption amount. I showed this to my parents and it made them feel much more confident about helping with my down payment. Definitely easier than the 3 hours I spent reading contradictory advice on various finance forums!

Your mother-in-law definitely has these concepts mixed up! I had a similar issue explaining this to my aunt. After dozens of frustrating phone calls to the IRS where I couldn't get through, I used https://claimyr.com to actually speak with an IRS agent directly. They have this cool system where they wait on hold with the IRS for you and then call you when an agent is on the line. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what others have said here - gifts to individuals are NOT deductible from income tax. The gift tax and income tax are entirely separate systems. She can give up to the annual exclusion amount per person without filing anything, but she definitely can't deduct those gifts on her 1040.

I have to admit I was wrong about Claimyr. After expressing my skepticism, I decided to try it because I had a complicated question about a late 1099 from a client. The service actually worked exactly as described. I put in my phone number, and about 1 hour 45 minutes later (during which I went about my day), I got a call connecting me directly to an IRS representative. I didn't have to sit listening to that awful hold music! The agent confirmed what everyone here is saying about gifts - they're not deductible from income tax. She also helped sort out my 1099 question which saved me from potentially filing an amended return later. For anyone dealing with elderly relatives who have tax confusion, actually getting an official answer from the IRS can be really helpful.

There's another option you might consider - your mother-in-law could directly pay for medical expenses or tuition for family members, and those payments don't count toward the annual gift exclusion AT ALL when paid directly to the institution. So if any of her kids or grandkids have educational or medical expenses, she could pay those directly to the school/hospital in ADDITION to giving the $13,500 cash gift. Just something to consider if her goal is to transfer wealth efficiently!

Hey what if the grandmother sets up a trust instead? My grandpa did something like this to avoid some taxes i think. Not sure if it would help in your situation but maybe worth looking into?

Just to clarify something in case your mother-in-law is confused - charitable donations ARE tax-deductible (if she itemizes deductions), but gifts to family members are NOT. It's possible she's mixing these two concepts up. Or maybe she's thinking of the $250 "gift" that used to be available as a charitable contribution without substantiation many years ago? Tax laws have changed so much over the decades.

This is such a common misconception! You're absolutely correct - gifts to family members are not deductible on income tax returns. Your mother-in-law may be thinking of charitable donations, which ARE deductible, or possibly remembering old tax rules from decades ago. The annual gift tax exclusion (currently $17,000 for 2023, going to $18,000 for 2024) simply means she won't need to file a gift tax return or use up any of her lifetime estate tax exemption when giving that amount per person. But it has nothing to do with income tax deductions. It might be worth gently suggesting she double-check with a tax professional before filing, just to make sure she doesn't accidentally claim an improper deduction. The IRS can be pretty strict about disallowed deductions, and you don't want her dealing with penalties or having to file an amended return later. You're being a good family member by looking out for her!