What Are Gift Tax Implications In Buying Ibonds As Gifts

Choice
  |     |   657 posts since 2020

Saw this open item on another site and perhaps it is an interesting/expanded DA subtopic on ibonds…anyone have any insight or they are not buying gifts for relatives…a way to “transfer” wealth?

“1. If ibonds are purchased as a gift to a non spouse, is a gift tax return required or is this considered a present interest transfer and subject to normal annual exemption amount?

“2. And if multiple gift ibonds are again made in the same year to same nonspouse…what are the gift tax ramifications?

“Delivery would be through various years in the future given the TD $10k per delivery year rule”



Answers
CuriousDave
  |     |   87 posts since 2018
1. A gift tax return is not required for any gift that is not a gift of a present interest, regardless whether or not the recipient is the donor’s spouse. Such a gift is excluded from the definition of “gift” for gift and estate tax purposes. No part of the annual per-person gift exclusion is used up for gifts that are not gifts of present interests. If I-Bonds are purchased in the name of someone else, spouse or not, and that person does not compensate the purchaser, that is a gift of a present interest and is a completed gift for gift and estate tax purposes and will use up some of the annual per-person gift tax exclusion ($16,000 per person for 2022 gifts). Example: X purchases I-Bonds for $10,000 in 2022 and registers the bonds in the name of her daughter Y, with no repayment by Y and no request or expectation that Y will compensate her. That is a completed gift to Y. Assuming that X makes no other gifts to Y in 2022, X will not need to report the gift to IRS because her aggregated gifts to Y were less than $16,000.
2. If multiple gifts of I-Bonds are made to the same person in the same year, each gift will be a completed gift of a present interest, and if these gifts aggregate to more than the annual maximum, the excess will use up some of the donor’s lifetime gift exclusion, which, for 2022, is $12.06 million. Example: Donor X purchases I-Bonds for daughter daughter Y three times in 2022, each for $3,000, for a total of $9,000. X also gifts $12,000 in cash to Y in 2022. Therefore, X has made gifts to Y in 2022 that aggregate to $21,000. X must report all of these gifts on a 2022 gift tax return (Form 709). The annual exclusion for 2022 is $16,000 per person, so $5,000 will be applied in reduction of X’s lifetime gift exclusion of $12,060,000, leaving a remaining lifetime exclusion balance of $12,055,000. 
However, if you wish to take advantage of the $10,000 per year delivery rule (from the I-Bond gift box) that should work, assuming the Treasury allows it, because each of the gifts will not be considered complete until the year that each delivery has occurred. In each year, as long as you will have gifted less than the annual maximum you would not need to report as long as no other gifts are made to the same recipient that would take any annual aggregate over the annual max. You may want to monitor an ongoing discussion on Harry Sit’s blogspot in his site (The Finance Buff) dealing with the annual purchase limits for gifts using the gift box route. It’s not yet settled whether or for how long the Treasury will allow people to make multiple gift purchases in the same year for deliveries to be spread over several years. To complicate matters the Treasury has been overloaded for some time because of the huge demand for I Bonds and it may be a while before the Treasury issues some kind of authoritative written ruling on this issue. 
Choice
  |     |   657 posts since 2020
Any gift tax authority for the first example, i.e. a gift purchase but not delivered "is a completed gift of a present interest to Y?" Yet in the last paragraph, the statement is made "each $10K delivery would be a completed gift of a present interest only in the delivery year" Any authority for the second proposition?
How can there be a "completed gift" under each scenarios?
This would suggest the donor would have to monitor each year, i.e. when placed in gift box AND with delivery in a later year....really?
Thanks!
CuriousDave
  |     |   87 posts since 2018
Please see revised comment. A gift is not complete until it has been delivered, so someone who purchases I-Bonds in someone else’s name AND opens a Treasury Direct account in that person’s name is treated as having delivered the the bonds to that person as owner and has completed the gift, but if the gift box method is used instead, the gift will not be completed until the Treasury Direct account for the recipient has been opened to take “delivery.” For details of this gifting technique, please look up gift purchasing on Harry Sit’s site (The Finance Buff).
Choice
  |     |   657 posts since 2020
Saw it...thanks. Sorry to you and Alan... I wasn't clear...The original inquiry by my post was in using the Gift Box. Ownership of the gift is registered with TD from the get-go in the gift box, not at delivery...but upon delivery, the recipient can change things...but that is not the Q.
Are you saying that the gift box purchase is a present gift for gift tax purposes at time of the gift box purchase by donor or upon delivery? (We are all well aware of what Treasury may or may not do)...but if anyone here is contemplating a $16k gift box purchase for one year for one person...it would be "nice" to know if that undelivered purchase is or is not a present interest or b/c it is a future interest (b/c of delayed delivery) one must file a gift tax return in that purchase year. Any authorities would be welcomed. Again, thanks
alan1
  |     |   684 posts since 2015
I'm not clear on what Choice is asking in the above comments or, especially in his original question number 2, where Choice asks about "if multiple gift ibonds are again made in the same year" and then states that "“Delivery would be through various years in the future..."

I understand a bit about delivery of savings bonds as gifts; I understand a bit about purchases of savings bonds as gifts. I have never heard of "gift ibonds" being "made".

Perhaps the following from "Buy I Bonds as a Gift: What Works and What Doesn’t" by The Finance Buff is relevant to Choice's queries:

"Buying I Bonds as a gift counts toward your annual gift tax exclusion amount in the year of the purchase (not the year of delivery)..."

And perhaps there are other things in the article that are pertinent to Choice's queries.

The article is at https://thefinancebuff.com/buy-i-bonds-as-gift.html#htoc-deliver-gift

As to the reliability of factual statements that appear on The Finance Buff, my impression is that they tend to be accurate. I am not a tax attorney or CPA. And I'm not in a position to knowledgeably evaluate the quoted statement from the above-cited article.

(As to the value of investment advice and financial strategies propounded on that site re obligations of the U.S. government, that's a rather different matter.)
Choice
  |     |   657 posts since 2020
Looking at other sites...I see that the Q being asked was also posed before (see below)...I haven't seen any definitive answer BUT i did find another robust thread on this narrow topic (over 200 posts!) on/at
https://www.bogleheads.org/forum/viewtopic.php?t=306297&start=150

"Any idea what's the gift tax treatment? Does the bond count against the gift tax exclusion in the year when the savings bond are purchased and put in the gift box (because "the registration is irrevocable"), or in the year when the bond is transferred to the recipient's account (because until then the purchaser still has some control over it)?

Anyone see "the" answer???
NYCDoug
  |     |   210 posts since 2011
https://www.thebalance.com/how-is-the-gift-tax-calculated-3505674

Info referencing last year (2021):

"Individuals must only file a gift tax return after reaching their annual exclusion of $15,000 and must only pay gift taxes after reaching their lifetime exemption of $11.7 million for the 2021 tax year."


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