CAN I GIFT PROFITS FROM AN INVEST PROPERTY TO AVOID INCOME TAX ON THAT PROFIT?

I know which if i sell an investment skill prior to a single year I will be taxed during unchanging state/fed income levels upon the distinction done (not during collateral benefit taxation rates)- Can I present the increase ($12,999 to as most persons) as well as equivocate carrying to compensate taxes upon it during the finish of the year? Any alternative ways around carrying to compensate 30% upon which profit??

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{ 9 comments }

Paris April 23, 2011 at 5:22 pm

That depends on how much charitable giving you’ve already done for the year. This is a question for your accountant because she knows you personal financial picture better than anyone here.

Steve D April 23, 2011 at 5:47 pm

No you can’t – the only way you get a deduction is to gift the money to a bone fide charity – gifting to individuals does not alleviate you or the responsibility to pay taxes on income prior to the gift.

Bash Limpbutt's Oozing Cyst© April 23, 2011 at 6:08 pm

Where do you get the idea that gifting the profits avoids taxation? It does not. You pay the taxes on the profits and then can gift whatever is left if you wish. As long as the gifts are less than $13k per recipient you won’t have to file a gift tax return or potentially pay any gift taxes.

Even if you donated it all to charity, your charitable deduction is generally limited to 50% of your AGI each year. Any excess must then be carried over to future years. Donating to charity to avoid taxes does not make much sense, since the taxes are only a relatively small portion of the total donation.

tro April 23, 2011 at 6:44 pm

no, because you first have to claim the profit before you can gift it
and gifts of $13000 do not reduce your taxable income unless you are donating to charitable organizations

Woof April 23, 2011 at 6:58 pm

No. Gifting to individuals is never deductible. Only donations to recognized charities are.

Wayne Z April 23, 2011 at 7:36 pm

Gifts to individuals are in no way deductible.

You would still be taxed on the profit.

CarVolunteer April 23, 2011 at 7:45 pm

If it were stock, you could give away the stock before selling it. The recipient would then owe any profits when they sold. Of course, you would then be giving away more than the profits.

Judy April 23, 2011 at 8:31 pm

Gifts to individuals aren’t deductible, only to registered charities. So you’d pay the income tax, then could do whatever you wanted to with the money but it wouldn’t be deductible if you gifted it.

Michael Plaks April 23, 2011 at 8:34 pm

You cannot avoid taxes by gifting profits, as other people already stated.

However, you may have couple options if this property was a RENTAL property or property held for appreciation – as opposed to FLIP property that you simply buy and resell or buy-fix-resell.

The most common solution is *exchanging* this property for another property rather than selling it. Officially, this is known as “section 1031 exchange” or “like-kind exchange” or “tax-deferred exchange”, all 3 meaning the same thing. It’s not a do-it-yourself project, because the IRS rules are quite tricky and very easy to trip over. You will need to hire a third party facilitator known as “qualified intermediary.”

Beware that such exchange will NOT work for flips, only for rental or investment property. Also, with less than a year holding period, it will be very difficult to find an intermediary willing to dance with you, because they will be risking IRS scrutiny. Most intermediaries will expect you to hold it for 2 years, even though it’s not legally required.

For flips, you can somewhat address your problem by setting up tax-deferred benefits such as retirement plans, but it also requires competent help.

Below, I put a link to my article that outlines other possible solutions.

Michael Plaks, EA, Houston TX
Real Estate specialist
http://www.MichaelPlaks.com

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