Gift Tax and Exclusion
Generally, a donor (payer) pays the gift tax for gift transfers to the donee (recipient or payee). Under some special arrangements, the recipient or donee may agree to pay the IRS taxes.
This IRS Publication 559 covers estate and gift taxes. Search other IRS publications or forms and learn more about estate taxes.
The Gift Tax Explained
Any gift from one person to another is technically a taxable event if it exceeds certain thresholds for the exclusion. It is a tax on the transfer of property (cash, asset, land, etc.) in which one individual gifts the property while receiving nothing in return. This tax is applied regardless of if the donor intends it to be a gift or not, as long as it can be defined as a gift.
As the payer or giver, you are responsible for the Gift Tax as a result of giving a gift to someone. In most cases, a gift is an event in which nothing is given in return, but it can also be considered a gift if something of equal or lesser value is given in exchange.
Here are sample gift tax exclusions, exceptions, and high-level points.
- Gifts within the annual gift tax exclusion for the tax year - see below - are generally nontaxed so most people do not need to worry about paying taxes on gifts.
- Tuition, educational, or medical expenses a donor or payer covers for someone are generally nontaxable. You will not owe tax on any amount paid for someone else's tuition or medical bills. The payment must be made directly to the educational or medical institution, not the person receiving the education or medical care.
- Gifts a taxpayer makes to his or her spouse are excluded; you do not have to pay taxes on any amount given to your spouse as a gift unless they are not a United States Citizen. However, if you do give a gift to your spouse who is not a U.S. Citizen, you will pay tax if it is over the exclusion amount - refer to the table below.
- Gifts made to any political organization for its use are considered gifts, not deductible charitable contributions, and you may exclude any amount given to political organizations. The organization must use the money for its purposes and may not act as an intermediary to dispense the funds to a third party.
- Gifts to qualifying charities are deductible from the value of the gift(s) made and are not subject to the Gift Tax. Charitable contributions made to qualifying charities are not only deductible on itemized tax returns, but you may also deduct the value of your charitable donations from the amount of Gift Taxes you owe.
- Find out the gift tax regulations by state.
Can my parents give me a sum of money as a gift, $20,000? How do I avoid gift tax? Is there a limit on how much money I can give as a gift?
When you give someone a gift of money or property, you may owe a Gift Tax. As the one who gives the gift, you are usually responsible for paying the gift tax. A taxable gift is a transfer of any money or property to another person without expecting full compensation or repayment of at least equal value. Reduced-interest or interest-free loans may be considered gifts for tax purposes.
Here are four factors you need to know if you are giving money or property to someone:
- If you give someone a gift or gifts of money or property and the value exceeds the annual gift exclusion amount, you will generally owe gift taxes.
- If you give a gift of property, taxes must be paid on the item's fair market value (not the purchase price nor the original value).
- You do not have to pay tax on gifts totaling less than (or equal to) the annual exclusion amount see the amounts in the table below.
- You do not have to pay tax on gifts that qualify for other exclusions (see below).
Gift Tax Exclusions Amounts by Tax Year
You may give someone up to the exclusion amount below in gifts before paying any gift tax. The annual gift exclusion limits nontaxable gifts per person and you can give multiple people up to the limit each without incurring any tax liability. However, your annual gift exclusions are limited to a lifetime total.
You can give a gift over multiple years to avoid taxation if it is under the limit. For example, if you wanted to give a gift of $50,000, you could pay taxes on most of it if you gave this in one year. However, you would not owe tax if you spread this out over four or more years in separate, smaller payments.
The table below is organized by year to show the comparison between the annual exclusion, the lifetime exclusion, and the exclusion for a gift one spouse makes to their spouse who is a non-U.S. citizen.
The lifetime Gift Tax exclusion is directly related to the lifetime Estate Tax exclusion. Note that the amounts for each exclusion are doubled for married filing jointly couples.
More Helpful Resources
Married couples may split the value of gifts given together as a couple, which effectively doubles the annual gift exclusion for joint filers. If a gift is made of community property, each spouse will be considered to be giving half the fair market value of the gift. The individual gift exclusion is portable for married couples. This means that if one spouse does not use up their limit, the other spouse may use it.
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