How Much Is Paid As Gift Tax?
Gift tax is a tax you pay the IRS on gifts that you give to others -- recipients are not taxed on gifts. Since the IRS applies large exclusions, you will not have to pay gift tax unless you make a large gift. Certain types of gifts are exempt from gift tax no matter what their value.
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Definition
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A gift is not taxable without "donor intent." You have donor intent if your motivation for giving the gift was admiration, charity or generosity, as determined by the circumstances surrounding the gift. If your motivation for giving the gift is to receive something in return -- for example, to cement a business relationship -- it is not considered a gift by the IRS. If you sell something to someone for considerably less than its fair market value, it can still be considered a gift if you had donor intent.
Valuation
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Cash gifts are calculated at face value. If you donate property, the value of the gift is usually the fair market value of the property. Some gifts, however, such as household appliances, are subject to special IRS valuation standards contained in the instructions for Form 709 (see Resources). If you sell something to someone for less than its fair market value, the amount of the gift is the amount by which the price of the gift was discounted.
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Exclusions
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You may gift your spouse as much as you want without incurring gift tax liability. If you make a gift to a nonprofit organization qualified under Section 501(c) of the Internal Revenue Code, you incur no gift tax liability and may deduct the value of the gift from your taxable income (within certain limits). Other gifts are subject to a $13,000 annual exclusion per recipient per year. You and your spouse may aggregate your exclusions and gift as much as $26,000 to a single recipient without incurring gift tax liability.
The Unified Tax Credit
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The unified tax credit is a cumulative lifetime tax credit that applies to both estate and gift taxes. Since it is a tax credit, it is subtracted directly from the amount of gift tax that would otherwise be due. As of 2011, the lifetime credit allows you to give away $5,000,000 during your lifetime without being subject to gift tax. The accumulated lifetime credits that you use will be subtracted from your estate tax exclusion when you die, meaning that the more you use the credit to avoid gift tax, the less credit your estate will have left to avoid estate tax.
Tax Rates
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As of 2011, gifts are taxed at a rate of 18 to 35 percent of the amount by which the value of the gift exceeds the applicable exclusion and credit -- the higher the value of the gift, the higher the tax rate.
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References
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