How Does the IRS Track Gifts for the Gift Tax?
In the United States, gifts valued over a certain threshold amount are taxable according to a two-tiered formula. In the second half of that formula, gifts are tracked over the giver's lifetime in order to apply a tax credit up to a second threshold. The IRS only tracks gifts that fall into the second tier of this formula.
Other People Are Reading
-
First Tier: Annual Limits
-
Each individual has a certain gift value he may give to an individual completely tax-free. That threshold is $13,000. One person may give up to this amount to several different people, so you could give a total of $26,000 tax-free to your son and his wife provided you gave each $13,000 individually. You and your spouse may each separately give up to this threshold as well. However, if you do not give this combined gift in separate checks (or other separate disbursement form) you must file a form 709 to clarify your gift structure to the IRS.
Second Tier: The Lifetime Exemption
-
If you exceed the one-year threshold at any time, you still have a lifetime exemption from tax in the form of a tax credit against any tax owed, up to $1,000,000 in lifetime gifts to a single person. For instance, if you gave $25,000 to your son in 2011, you would pay taxes on the $12,000 over the annual exemption. These taxes would be offset by a credit, leaving you with $988,000 more you could give your son tax-free during your lifetime over and above the annual exemption. If you give any amount over the annual exempt limit, you must file a form 709. You must also keep a personal running total of all taxable gifts and to whom they went.
-
Form 709
-
Form 709, "United States Gift (and Generation-Skipping Transfer) Tax Return," is designed to track all the gift tax incurred within a single year by a taxpayer filing either individually or jointly with spouse. All taxable gifts are listed on the same form, and you are expected to know how much of your lifetime exemption has been used thus far.
Married Couples and Gift Tax
-
Married couples usually do not incur gift tax when giving one another property. However, if one spouse is a resident alien, there may be tax consequences for large gifts transferred to the non-U.S. citizen. In 2010, gifts of up to $134,000 were free of tax consequences. Gifts exceeding this amount incur gift tax and follow the same rules as any other taxable gifts.
-
References
- Photo Credit tax time image by Tom Oliveira from Fotolia.com
