Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

The gift tax: Frequently asked questions part 1

When you present gifts to family and friends, probably the last thing on your mind – or theirs – is gift tax. For this reason, the gift tax often is often overlooked, and the average person does not know much about it. So, here are some FAQs to get you familiarized with gift taxes.

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  1. Who pays the gift tax?

The gift tax is the responsibility of the donor (the person giving the gift) not the donee. For example, let’s say your parents give you a car, a house or just straight up cash – if a gift tax applies, it is your parent’s responsibility to pay. Not yours.

  1. What is considered a gift?

A gift is any transfer to an individual for which full consideration is not received in return. The transfer can be direct or indirect. Note this definition states that full consideration is not received. If your parents decide to sell you a house worth $400,000 for only $200,000, they do not receive full consideration in return – meaning that they have a $200,000 gift on their hands.

  1. Are there any exceptions to things that are considered gifts?

There are many things that are not considered taxable gifts – meaning that you can gift them as much as you would like without being subject to the gift tax. These being:

  • Gifts that do not total more than the annual exclusion in a calendar year (currently $15,000)
  • Tuition or medical expenses paid for someone else, paid directly to the institution (like a school or hospital)
  • Gifts to your spouse
  • Gifts to a political organization
  • Gifts to qualifying charities
  1. What is the annual exclusion and how many are available to me?

The annual exclusion is applied on a per donee basis. Meaning, in one year, you could gift the annual exclusion amount to as many donees as you would like without any gift tax implications. As stated before, the current annual exclusion is $15,000, so you could gift up to $15,000 to every person you know without any gift tax applied.

  1. Can my spouse and I gift property that we own together?

Yes, you can! Because there are two of you, your combined annual exclusion amount now becomes $30,000. If you are married and want to gift property owned separately, you can still elect to “split” the gift, meaning the gift is treated as made one-half by each of you, and you again get a $30,000 annual exclusion (with the consent of your spouse of course).

The above is general in nature and should not be relied on. Please consult with a qualified tax professional for advice.

Haley M. Braun, CPA