Understanding Gift Taxes After Selling My House - Gift to Relatives After Sale of Residence

I'm trying to wrap my head around gift taxes for this situation I'm dealing with. My mom recently sold her house in upstate New York and wants to give my sister and me about $500,000 each from the proceeds. This would be a pretty big chunk of her overall worth, so I think the annual exclusion limit doesn't really matter here. From what I've gathered, there shouldn't be any immediate tax hit for her or for us kids, but she'd need to file that Form 709 with her taxes, which would basically reduce her lifetime gift exclusion from about $13.3 million down to $12.3 million (if I'm understanding the math right). For us kids, we just need to make sure we document somewhere that this money was a gift and not income, right? Am I missing anything with this plan? Are there other pitfalls or issues we should consider before she writes those checks? Just want to make sure we're doing everything properly and not setting ourselves up for a headache down the road.

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18 comments

Libby Hassan

•8M

You've got the basics right, but let me clarify a few things about gift taxes in your situation. When your mother gives $500,000 each to you and your sister, she won't owe any immediate gift tax, but she will need to file Form 709 (the United States Gift Tax Return). The current lifetime gift and estate tax exemption is actually $13.61 million per individual for 2024 (and likely higher for 2025 with inflation adjustments). After giving $1 million total ($500k to each child), her remaining lifetime exemption would be reduced by that amount. The annual gift tax exclusion ($18,000 per recipient for 2024) would apply first, so technically the exemption would be reduced by $482,000 per child. For you and your sister, you're correct that there's nothing to report on your tax returns. The gifts aren't taxable income to you. However, you should keep documentation showing this was a gift, especially for large deposits that might raise questions. A simple gift letter signed by your mother would suffice. One consideration: if your mother might ever need Medicaid for long-term care, there's a five-year lookback period where gifts could affect eligibility.

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Libby Hassan

•8M

There are no property tax implications specific to using gifted funds to purchase property. The money is yours once gifted, and how you use it doesn't change any tax considerations. The source of your down payment doesn't affect property taxes - those are based on the assessed value of the property you purchase. Breaking large gifts into smaller amounts to avoid filing requirements (sometimes called "structuring") is not recommended. The IRS looks at the total amount gifted in a calendar year, so splitting $500,000 into multiple smaller payments within the same year doesn't change the reporting requirement. Your mother should make the gifts in whatever way is most convenient and just file the Form 709 as required. Being transparent is always the safest approach.

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Sofia Peña

•8M

After reading through a similar situation with my parents, I discovered taxr.ai (https://taxr.ai) which was super helpful for sorting through all the gift tax confusion. I was getting different advice from friends about whether my mom needed to file anything when she gave me money from her home sale. The site analyzed our situation and confirmed that only Form 709 was needed, but also pointed out some NY-specific considerations I hadn't thought about. What really helped was uploading the previous gift letters my mom had written for smaller gifts to make sure our new documentation was consistent. It saved me from having to pay a tax pro just to confirm what I mostly already knew. The peace of mind was definitely worth it.

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Sofia Peña

•8M

It's definitely personalized - you describe your specific situation and upload relevant documents if you want a more detailed analysis. In my case, I uploaded the home sale documents and previous gift letters, and it pointed out that my mom had already used up more of her lifetime exemption than we realized from previous years. For generic information, Google works fine, but taxr.ai goes deeper by analyzing the documents and connections between different tax situations. It's not just explaining the gift tax rules but actually applying them to your specific numbers and circumstances. For example, it caught that we were mixing up the annual exclusion amount from 2023 versus 2024, which would have caused us to report incorrect numbers on the Form 709.

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Aaron Boston

•8M

Just wanted to follow up that I tried taxr.ai after asking about it here, and it was actually really helpful for my grandparents' situation. They were planning to give me about $90k from their vacation home sale to pay off my student loans, and I was worried about tax implications. The site walked me through exactly what documentation we needed and confirmed no taxes would be due but that they would need to file the gift tax form. The coolest part was it showed exactly how to fill out the Form 709 for their specific situation and created a gift letter template that covered all the bases. My grandparents were relieved because they had been getting conflicting advice from their friends about whether they'd owe actual gift taxes. Definitely worth checking out if you're in a similar boat.

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Chloe Zhang

•8M

After dealing with a similar gift situation and waiting FOREVER to get someone at the IRS to confirm the Form 709 filing requirements, I found Claimyr (https://claimyr.com) which literally saved my sanity. They got me connected to an actual IRS agent in about 20 minutes when I had been trying for days on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent cleared up my confusion about whether my mom needed to file Form 709 for each year she gave gifts or could combine multiple years, plus answered questions about how her state tax return would be affected. Apparently there are some specific rules about timing the gifts relative to the home sale that I wouldn't have known about otherwise.

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Chloe Zhang

•8M

It's actually pretty straightforward - they use an automated system that keeps dialing and navigating the IRS phone tree until it gets through to a representative. Then when an agent is about to come on the line, they call you to connect. It's no different than if you had the time to keep calling back repeatedly yourself, they just automate the tedious part. They don't skip any lines or do anything unethical - they just handle the frustrating part of constant redialing when you get disconnected or having to navigate through all those menu options. I was skeptical too but it actually worked exactly as advertised. The IRS doesn't mind how you get connected as long as you're the actual person with the tax question when an agent comes on the line.

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Adriana Cohn

•8M

I need to eat my words about Claimyr. After posting that skeptical comment, I decided to try it myself since I've been trying to get answers about my parents' Form 709 for weeks. It actually worked exactly as advertised - I got a call back in about 35 minutes and was connected with an IRS representative who answered all my questions about gift splitting between my parents. The agent explained that my parents could each use their individual exemption amounts to essentially double the gift without affecting their lifetime exclusion as much. She also confirmed exactly which supporting documentation they needed to keep with their records. Saved me hours of frustration and probably a costly meeting with our accountant. So yeah, I was wrong - this service delivers what it promises.

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Jace Caspullo

•8M

Just want to add something important that wasn't mentioned yet - your mom should be careful about timing if there's any chance she might apply for Medicaid within 5 years. My aunt gave us similar gifts after selling her house and then needed nursing home care 3 years later. Those gifts created a penalty period where she couldn't get Medicaid coverage. Make sure your mom talks to an elder law attorney if there's any chance she'll need long-term care in the next few years!

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Jace Caspullo

•8M

It is unfortunately a pretty hard 5-year lookback rule, though there are some limited exceptions. Some types of transfers to certain family members (like a disabled child) or into specific trusts don't trigger penalties. An elder law attorney might suggest alternatives like your mother keeping the money but creating a carefully structured promissory note if she wants to help you now, or setting up a proper medicaid-compliant annuity. Another option could be having her contribute to 529 education plans for grandchildren which may have different treatment. The rules are complex and vary by state, so definitely get professional advice specific to New York if this is a concern. The consultation fee would be tiny compared to the potential costs of getting it wrong.

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