If you give money or property to someone as a gift, you may wonder if the gift is subject to the federal gift tax. Most gifts are not subject to the gift tax but here are some tips to help you better understand the gift tax.
As a general rule, any gift is a taxable gift. There are exceptions to the rule. The following gifts are not subject to the gift tax:
- Gifts that do not exceed the annual exclusion amount for the calendar year.
- Tuition or medical expenses paid directly to the medical or educational institution for someone
- Gifts to your spouse
- Gifts to a political organization or its use
- Gifts to charitable organizations
If you give a gift to someone else not described above, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion amount for the given year. For 2015, the annual exclusion is $14,000.
Generally, the person who received the gift is not affected and will not have to pay federal income tax on the gift. Making the gift does not ordinarily affect the giver’s income tax liability either since the gift is not tax deductible (unless it is to a charitable organization).
The gift tax may apply if you forgive a debt or make a loan that is interest free or below the market interest rate.
Spouses can split the gift amount and thus can gift up to $28,000 to a third party without making it a taxable gift. You can consider that one-half of the gift given by you and one-half by your spouse.
You must file form 709 if any of the following apply:
- You gave gifts to at least one person that amount to more than the exclusion amount
- You and your spouse are splitting the gift. This is the case even if half of the split gift is less than the exclusion amount
- You gave someone a gift of a future interest they can’t actually posses
- You gave your spouse an interest in property that will terminate due to a future event
If you have any questions, don’t hesitate to contact us at Dusseau & Makris, PC, your Mesa CPA firm.