The gift tax applies
to transfers by gift of property. You make a gift
if you give property (including money), the use of
property, or the right to receive income from property
without expecting to receive something of at least
equal value in return. If you sell something for less
than its full value or if you make an interest-free
or reduced-interest loan, you may be making a gift.
The general rule is
that any gift is a taxable gift. However, there are
many exceptions to this rule.
Generally, the following
gifts are not taxable gifts:
A separate annual exclusion applies to each person
to whom you make a gift. The gift tax annual exclusion
is subject to cost-of-living increases.
Tax Annual Exclusion
Currently, you generally can give gifts valued up
to $13,000 per person, to any number of people, and
none of the gifts will be taxable.
However, gifts of
future interests cannot be excluded under the annual
exclusion. A gift of a future interest is a gift that
is limited so that its use, possession, or enjoyment
will begin at some point in the future.
If you are married,
both you and your spouse can separately give gifts
valued up to $13,000 to the same person without making
a taxable gift. If one of you gives more than the
$13,000 exclusion, see Gift Splitting, later.
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
You pay the $15,000 college tuition of your friend
directly to his college. Because the payment qualifies
for the educational exclusion, the gift is not a taxable
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.
If you or your spouse
makes a 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
agree to split the gift. If you do, you each can take
the annual exclusion for your part of the gift.
Currently, 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.
Harold and his wife, Helen, agree to split the gifts
that they made during 2011. Harold gives his nephew,
George, $21,000, and Helen gives her niece, Gina,
$18,000. Although each gift is more than the annual
exclusion ($13,000), 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.