Annual exclusion
A separate annual exclusion applies to each person
to whom you make a gift. For 2009, the annual exclusion
is $13,000. Therefore, you generally can give up to
$13,000 to any number of people in 2009 and none of
the gifts will be taxable.
If you are married, both you and your spouse can
separately give up to $13,000 to the same person in
2009 without making a taxable gift. If one of you
gives more than $13,000 to a person in 2009, see Gift
Splitting, later.
Inflation adjustment
After 2009, the $13,000 annual exclusion may be increased
due to a cost-of-living adjustment.
Example 1: In 2009, you give your niece a
cash gift of $8,000. It is your only gift to her this
year. The gift is not a taxable gift because it is
not more than the $13,000 annual exclusion.
Example 2: You pay the $15,000 college tuition
of your friend. Because the payment qualifies for
the educational exclusion, the gift is not a taxable
gift.
Example 3: In 2009, you give $25,000 to your
25-year-old daughter. The first $13,000 of your gift
is not subject to the gift tax because of the annual
exclusion. The remaining $12,000 is a taxable gift.
As explained later under Applying the Unified Credit
to Gift Tax, you may not have to pay the gift tax
on the remaining $12,000. However, you do have to
file a gift tax return unless the gift was made from
community property funds and is actually a gift one
half from the father and one half from the mother.
Gift Splitting
If you or your spouse make a separate property gift
to a third party, the gift can be considered as made
one-half by you and one-half by your spouse. This
is known as gift splitting. Both of you must consent
(agree) to split the gift. If you do, you each can
take the annual exclusion for your part of the gift.
In 2009, gift splitting allows married couples to
give up to $26,000 to a person without making a taxable
gift.
If you split a gift you made, you must file a gift
tax return to show that you and your spouse agree
to use gift splitting. You must file a Form 709 even
if half of the split gift is less than the annual
exclusion.
Gifts by married couples from community property
funds are not taxable and no reporting is required
unless the gift exceeds $26,000.
Example: Harold and his wife, Helen, agree
to split the gifts that they made during 2009 from
inherited funds. Harold gives his nephew, George,
$21,000, and Helen gives her niece, Gina, $18,000.
Although each gift is more than the annual exclusion
($12,000), by gift splitting they can make these gifts
without making a taxable gift.
Harold's gift to George is treated as one-half ($10,500)
from Harold and one-half ($10,500) from Helen. Helen's
gift to Gina is also treated as one-half ($9,000)
from Helen and one-half ($9,000) from Harold. In each
case, because one-half of the split gift is not more
than the annual exclusion, it is not a taxable gift.
However, each of them must file a gift tax return.
Applying the Unified
Credit to Gift Tax
After you determine which of your gifts are taxable,
you figure the amount of gift tax on the total taxable
gifts and apply your unified credit for the year.
Example: In 2009, you give your niece, Mary,
a cash gift of $8,000. It is your only gift to her
this year. You pay the $15,000 college tuition of
your friend, David. You give your 25-year-old daughter,
Lisa, $26,000. You also give your 27-year-old son,
Ken, $26,000. Before 2009, you had never given a taxable
gift. You apply the exceptions to the gift tax and
the unified credit as follows:
