My aunt, 6 months ago added my name to her CD. Now she does not want to pay the estimated taxes on it so she wants her name off and I can pay the taxes on it. Do I pay taxes as if it were a gift or as if it were mine and only on the interest?
Believe it or not you have not asked a simple question.
If I understand you correctly, your aunt added your name to her CD. Her name was still on the CD. General tax law says that with regard to bank accounts, if your name is added to the bank account and you do not take any money out of the account, there is no taxable gift. The interest earned on the account will be taxed to the person whose social security number is on the account. If your aunt’s social security number has been on the CD, the interest income will go to her and she will be taxed on it.
Some things will change if she takes her name off of the CD. If she takes her name off of the CD, she will be giving you the whole CD as a gift. The gift tax, if any, depends upon the amount in the CD. We each have 2 gift tax coupons. The annual gift tax coupon is $13,000 and the lifetime gift tax coupon is $1 Million Dollars. Unless the CD is very large, there shouldn’t be a gift tax. Also, in general, any gift tax owed, will be owed by your aunt. When the CD changes hands and she gives it to you, her social security number will be removed and your social security number will be noted on the CD. At that time the interest income will be taxed to you.
As a side note, you might want to consider paying some of her income tax liability as a gift back to her, for her generosity. If you decide to pay some of her income tax liability, the same gift tax rules will apply to you.
This answer does not constitute legal advice and does not and is not intended to create an attorney-client relationship. The law may vary depending on the state in which you reside. It is intended only to give some direction in which to seek assistance.
Circular 230 Disclosure: Pursuant to recently-enacted U.S. Treasury Department Regulations, I am now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
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