When you make a gift to someone else, the United States may assess a gift tax on the transaction. If you plan to make any lifetime gifts to relatives, large or small, you may want to familiarize yourself with gift tax basics.
What Is the Gift Tax?
The U.S. government assesses the federal gift tax on assessed on any money or property that you transfer to someone else without receiving anything (or receiving less than its full value) in return. Under IRS rules, it does not matter whether you intended to transfer property as a gift or not. Even if you sell something for a reduced price or make an interest-free loan, you might be giving a gift for IRS purposes. If you receive a gift, you do not pay taxes. Only the giver may owe gift tax.
The IRS assesses gift taxes if you make gifts of more than $15,000 to one person in 2018. The $15,000 is called the annual exclusion amount. In addition, you have a lifetime exemption amount, which is the same as for the federal estate tax. The sum of your lifetime gifts and your total estate value must be less than the gift and estate tax exemption in the year of your death, or else your estate will owe expensive taxes.
For people who are not U.S. citizens or permanent residents and who are making or receiving gifts to and from U.S. citizens, the gift tax rules are a little different. Non-citizens making gifts to citizens probably will not owe gift taxes, but recipients of these gifts may have IRS reporting requirements. If a U.S. citizen makes gifts to a non-citizen spouse, the limit on gifting is $152,000 per year.
Are All Gifts Taxable?
Some gifts are not subject to the estate tax. First, any gifts you give below the $15,000 limit to each donee do not get taxed. In addition, you will not owe tax as long as your combined lifetime gifts and estate value are less than the lifetime exemption. Further, the government excludes the following kinds of gifts from taxation:
- Tuition you pay for someone else
- Medical expenses you pay for someone else
- Gifts to your spouse (aside from the non-citizen spouse limit discussed above)
- Gifts to a political organization for its use
Further, you can deduct the values of gifts to many charities on your tax return.
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