New Mexico Gift Tax: Don’t Get Trapped

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Paul Sundin, CPA

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New Mexico is among those states that have exempted the local state gift tax. However, this fact does not liberate New Mexico residents from gift taxation entirely.

Certain transactions can become an object for a federal gift tax and affect your lifetime exemption.

However, knowing the principles and rules of such taxation can not only help you avoid severe tax consequences but also protect your legacy, reducing your taxable estate.

What does the gift tax apply for in New Mexico?

Once you transfer money, assets, or property to another person without full consideration or entirely for free, IRS will see this transaction as a gift and may apply gift taxation to it even if you are a resident of New Mexico and any other state that does not have their local gift taxes.

Moreover, as long as interest-free loans are also considered gifts, you can become a donor (the one who makes a gift) and be responsible for the gift tax, even if you did not intend to make a gift initially.

However, due to the federal gift tax exception of $15,000 per person every year, this type of taxation is applicable only if you happen to exceed this sum in one of your transactions.

However, there are several things you should remember once you are concerned that you may be making and “taxable gift:

  • You can make those $15,000 gifts to as many people as you wish every year;
  • Gifts between two spouses who are both American citizens are not “taxable”;
  • Federal gift and estate taxes are pretty correlated. Once you happen to have sufficient property in New Mexico, the Gift Tax exclusion practice can help you reduce your “taxable” estate.

Getting down to your estate planning, consider making $15,000 gifts to your children from your estate. That way, you will reduce the taxable part, protecting your legacy for the future heirs.

Who needs to file the New Mexico gift tax return?

Since there is no state gift tax in New Mexico, you don’t have to fill the tax return for whether you make or receive the gift. However, once the estate exceeds the $15,000 value, the person who makes the gift becomes responsible for the federal gift tax due.

Such transactions will also affect your lifetime exemption. That is why whether you are considering the gift taxation principles as a way of estate planning or wish to make a costly gift, which exceeds $15,000, it is essential to be careful and consider all available options.

For example, you can “split” expensive gifts with your spouse or gradually give away your estate to your children throughout several years.

Such an approach will help you not only avoid unpleasant taxation surprises but also benefit from your local tax legislation.

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