(Frequently-Asked Questions on Gift Tax)
IF I receive a gift, do I have to pay a gift tax? No. The donee (recipient) is not responsible for paying the gift tax.
Who pays the gift tax? The donor (the person giving you the gift) is responsible for paying the gift tax.
What is considered a gift? A gift is any transfer where the donor does not receive full consideration in return.
May I deduct gifts on my income tax return? No. You cannot deduct the value of gifts that you make on your income tax return (but you can deduct charitable contributions made to tax-exempt organizations).
When is a gift tax return required? File gift tax Form 709, United States Gift (and Generation-Skipping Transfer) if:
• You give gifts that are more than the annual exclusion.
• You and your spouse are splitting a gift (even if less than exclusion amount).
• You make gifts of future interest (no exclusion, even if less than exclusion amount).
What can I exclude from taxable gifts?
• Gifts that are less than the annual exclusion.
• Gifts to tax-exempt charities.
• Gifts of tuition or medical expenses.
• Gifts to your spouse.
• Gifts to political organizations.
I paid tuition fees for my nephew and medical bills for my aunt. Am I required to report such gifts? No.
As listed above, you do not have to file gift tax returns for gifts of tuition fees or medical expenses.
How much is the annual exclusion? $13,000 from 2009 through 2012. Annual exclusion for 2013 is $14,000.
How many annual exclusions am I entitled to? As many as you want at $14,000 per donee.
How much can my spouse and I give without being subjected to gift tax in 2013?
• Gifts of $28,000 or less per year to a child (or any third party).
• Gifts of $56,000 or less per year to two children (or any two third parties).
Can I split a gift with my spouse? Of course, but you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file Form 709, even if half of the split gift is less than the annual exclusion.
What if my spouse and I want to give away property that we own together? You are each entitled to the annual exclusion amount on the gift. Together, you can give $28,000 of your equity for 2013.
What if I sell property that has been given to me? You step into the shoes of the donor. Your basis in the property is the same as that of the donor. If the property was originally acquired by the donor for $100K ($100,000), gifted to you when it was worth $150K, and later sold for $175K, your capital gain is $75K (not $25K). You step into the shoes of the person who has a basis of $100K.
Feel free to visit our website at www.victorsycpa.com for more than 300 tax tips.
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Victor Santos Sy, CPA, MBA, provides professional services in accounting and tax controversy including IRS audit defense and offers in compromise. He also advises clients on choices of entity including corporations for small businesses and LLCs for rentals. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation at 704 Mira Monte Place, Pasadena, CA 91101. The firm celebrates its 35th anniversary this year. You may email tax questions to Vic at [email protected]. You are welcome to visit our website for more than 300 tax tips at www.victorsycpa.com.
