If I win $10 million and pay taxes on it and then give $1 million to a friend do they also have to pay taxes on it?

[md-2000]

@doreen

For example, if I’m understanding correctly, in Canada assets are deemed to have been sold upon death and taxes are assessed on the capital gain which is included on the deceased’s final tax return

Yes, that’s my understanding. You are taxed on the gains, in Canada but the primary residence is exempt from capital gains taxes. (and interest on the mortgage is not deductible). Typically, capital gains are taxed as 50% of the income tax rate, there’s a lifetime maximum exemption (now $1.25M) for certain items, etc. On death, items in the estate are deemed sold at fair market value when transferred to the heir(s) if not sold.

@doreen

Not exactly - if that was the case, then the recipients would be paying income tax. But what actually happens is the gift-giver’s estate ends up being taxed.

I assume the logic was to avoid playing games - Bob gets $100,000 his tax rate is only 10% so effectively it would only be a $90,000 gift, Bill pays 25%… So to give a specific amount, any gift has to be an even larger but undetermined amount. The giver probably intends for the recipient to end up with a specific amount free and clear. And logically, the guy who has $100,000 to give probably pays an even tax higher rate so stick it to him.

[doreen]

@md-2000

assume the logic was to avoid playing games - Bob gets $100,000 his tax rate is only 10% so effectively it would only be a $90,000 gift, Bill pays 25%…

Nope, that’s not the reason. If I leave my daughter a million dollar vacation house in my will and she sells it for a million dollars - she has not had a capital gain and therefore doesn’t pay any capital gains tax. It doesn’t matter that I paid $150 K 40 years ago. * If my estate is below approx 14 million, no one ever pays any income/estate tax on that $850,000 gain. Same thing if I left her stocks worth a million that I bought for $150K. In Canada, those gains apparently would be taxed except in the specific case of the primary residence of the deceased.

* And that’s absolutely something that can happen - my mother bought a house in 1990 something. It was worth about $150K when she bought it and it’s worth over a million now.

[md-2000]

I’ve never understood the logic of that, I always attributed the American law to the power of positive campaign contributions.

[thelurkinghorror]

US:

@md-2000

(IIRC in Canada, and I assume the USA, there is a lower tax rate on dividend income to balance the fact that the business has already paid a profit tax).

Same, though I can’t comment on any motivation.

@md-2000

Yes, that’s my understanding. You are taxed on the gains, in Canada but the primary residence is exempt from capital gains taxes (and interest on the mortgage is not deductible). Typically, capital gains are taxed as 50% of the income tax rate, there’s a lifetime maximum exemption (now $1.25M) for certain items, etc. On death, items in the estate are deemed sold at fair market value when transferred to the heir(s) if not sold.

Primary residence when sold has the first $250k exempt from taxes ($500k if a married couple owns it). “Primary” means you lived and used the home for 2 of the last 5 years.

Mortgage interest is deductible, but only if you elect to itemize by enumerating your deductions instead of taking a fixed standard deduction.

Capital gains are separate tax brackets evaluated separately, not a fractional amount. I don’t know of any lifetime maximum on capital gains, but maybe I’m misunderstanding what you mean.

Same, real property has a “step up” in value so if your grandparents bought their house in 19-dickety-2 for bartering two chickens, you owe the FMV when you take possession, which usually means $0 tax. See other posts.