How Much Can a Parent Gift to a Child Without Tax?
The Internal Revenue Code has numerous provisions regarding taxes applied to transfers of wealth to others. While there is no provision specifically regarding giving gifts to one's children, children fall under a broader exception that excludes gifts under a certain dollar amount from being taxed to the gift's recipient.
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Gifts
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Under the Internal Revenue Code, a gift is considered any transfer of wealth to an individual either directly or indirectly that is not made with full consideration. "Consideration" means something of value given in return. For example, the sale of a $500,000 house for $1,000 would likely be seen as a gift, even though $1,000 of consideration was made for the gift.
Gift Tax
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The Internal Revenue Service requires that the donor of the gift, rather than the receiver, pay a tax on gifts. The gift tax does not apply to payments of tuition or medical expenses on behalf of another person, meaning that parents who pay a child's college tuition, for example, do not have to pay a tax on the money they spend on that tuition.
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Annual Exlusion
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Gifts to children are not given a specific exception under the gift tax. Instead, they are included under a broader exception that excuses taxes on gifts under a certain dollar amount. The dollar amount changes over time; for 2011 it was set at $13,000.
Multiple Children
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When gifts are made to multiple children, the children gift exception applies to each child individually, rather than collectively. For example, a parent with two children who gives her daughter a gift of $10,000 and her son a gift of $5,000 is not in excess of the gift limit because the $10,000 and $5,000 are treated separately and not added together.
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References
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