Cash gift to Canada.

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Skoorb
Posts: 30
Joined: Mon Feb 21, 2005 8:44 pm

Cash gift to Canada.

Post by Skoorb »

1) Hi! Kind of a reverse of a post from a few months ago, but I need to give about $42k USD to my parents in Canada. Obviously, it's incumbent I avoid any tax issues with this. I planned on giving $10.5k to my father, $10.5k to my mother, and then having my wife give $10.5k to my father and $10.5k to my mother. This will take the form of four wire transfers all from a single bank account here in the US.

Come 2007 tax time, I will put in the taxes that I did this. These are below the $12k limit. There is absolutely nothing else i need to do, right? No red tape or peculiar tax laws or anything?

2) Now another part is that this $42k will be coming out of a US home equity loan. I understand I can take out a HELOC for anything, including buying an old sports car or moon rocks, but can I deduct the interest on my taxes ONLY for portions of this loan used for home improvements and things like that? The reality is that the $42k was lent to us so that we could buy the home and so in an indirect way, paying back the $42k with a home equity line will be, in fact, used to pay for the home, but technically speaking it will be merely to give a cash gift, so am I right to think that I cannot legally deduct the interest on this HELOC?

Thanks and I hope everyone is having a great tax time this year :) I know I always do!
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

1) This is not a problem.
2) No need to justify. The heloc interest is deductible simply because it was secured on your house. It doesn't matter what you spend it on.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Skoorb
Posts: 30
Joined: Mon Feb 21, 2005 8:44 pm

Post by Skoorb »

Helpful as always.

More specifically, do I need to make 4 X $10,500 transfers, or since my wife and I are married, can I do 2 X $21k? I've found slightly differing wording on various websites. Also, the bank account here is in both of our names, though I guess a wire transfer has a sender's single name on it, so it would work out as 4X$10,500 if I need to.

You're more helpful than tax software :D
Carson
Posts: 182
Joined: Wed Oct 27, 2004 1:00 pm
Location: Toronto

Post by Carson »

2x $21k is fine as long as you document what you have done, i.e. these would be "split gifts". These need to be documented on Form 709, even though the gifts are less than the exclusion amount. Check out the instructions on page 1 of these instructions:

http://www.irs.gov/pub/irs-pdf/i709.pdf

Are you in a community property state? Do the funds come out of a joint account? Split gifts may be assumed, so probably best to do the 709 forms in any case - one each for you and your wife to document the gifts.
martinleroux
Posts: 9
Joined: Fri Dec 29, 2006 2:14 pm

Post by martinleroux »

[quote="nelsona"]The heloc interest is deductible simply because it was secured on your house. It doesn't matter what you spend it on.[/quote]

That's correct so long as you aren't paying Alternative Minimum Tax. HELOC interest is tax-deductible for AMT purposes only if the loan is used to buy, build or improve your home.
Skoorb
Posts: 30
Joined: Mon Feb 21, 2005 8:44 pm

Post by Skoorb »

Thanks, all.

I posted in the TN thread but it isn't necessarily on topic with this one. I received a cash gift from a Canadian person (not a trust) for less than $100k in 2006 and did not file the 3520. I know it's not taxable, but IRS still requires this to be filed if it's more than $10k or if it's more than $100k (depending on where I read this at). The 3520 form seems to state that I do not need to mention this since it was below $100k, but a lot of sites on the net still mention a $10k limit put in 1996. Was it $10k and is now $100k? The return is already filed, so if I don't have to submit the 3520 it seems undesirable to amend a return, and looking at 3520 there is actually no spot I'd put my entry, since I'd answer "no" to whether I received more than $100k.
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

whether you need to send 3520 or not, remember that 3520 does not need to be submitted with youtr return, as it is a standalone report., so you would not have to amend your 1040.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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