Gifting Rules
Even gifts aren't immune from taxes if they're expensive enough. If that's the case, not only will you be giving a gift to whomever you choose, but you will also be giving the IRS a gift in the form of a gift tax.
Other People Are Reading
-
What is a Gift?
-
By IRS rules, a gift property, including cash, is given without compensation or for compensation less than the property's market value. Not only does this include giving property or money, but it also includes granting the use or income from a property without getting back something of equal value. According to the IRS, "If you sell something for less than its full value or you make an interest-free or reduced-interest loan, you may be making a gift."
Fair Market Value
-
The property's fair market value determines the value of the gift. The fair market value is the price at which the property could sell for between a willing buyer and seller, both with a knowledge of the relevant facts about the property, according to the IRS. Another determinant is the price the property would sell for in a market where it is commonly sold. The same rule applies to valuing charitable contributions on your income taxes.
-
Gift-Tax Free
-
There are exceptions to what the gift tax must be paid on. These include the following: gifts that don't exceed the annual exclusion limit for the calendar year, tuition or medical expenses you pay for someone else, gifts to your spouse and gifts to a political organization for its use and gifts to qualifying charities.
Annual Exclusion
-
In 2011, the annual exclusion was $13,000 and applied to the person receiving the gift. This means that for each person you give a gift to, $13,000 of the value of it is gift-tax free. For instance, you could give each of your children $13,000 a year or you and your spouse could give each of your children $26,000 a year ($13,000 from you and $13,000 from your spouse). Any amount over those limits would be subject to the gift tax.
Lifetime Credit
-
While gift taxes are not deductible from your income taxes, they also won't necessarily affect your federal return. The IRS allows a lifetime unified tax credit of $345,800. As you make gifts during your lifetime, the gift tax comes out of this credit. This, in essence, allows for a $1 million lifetime exclusion from the gift tax. However, even if you do not have to pay the gift tax, you will have to file a Form 709 so the IRS can keep track of how much of your lifetime credit you are using.
-
