Gift tax

A gift tax is a transfer tax imposed on certain transfers of a gratutious nature where there is no consideration or the transfer is for less than market value.

In the United States the gift tax is imposed on the gratuitous transfer of monetary and non-monetary property. It is generally paid by the donor. In the United States, the gift tax is governed by Chapter 12, Subtitle B of the Internal Revenue Code. The tax is imposed by section 2501 of the Code.

The treatment of a gift for purposes of the U.S. gift tax (the transfer tax) should not be confused with the treatment of gifts for other tax purposes. For example, for U.S. income tax purposes most gifts are excluded (under Internal Revenue Code section 102) from the gross income of the recipient, and thus are not taxed as income.

Generally, if an interest in property is transferred during the donor's lifetime (often called an inter vivos gift) then the gift or transfer would not be subject to the estate tax. In 1976, Congress unified the gift and estate taxes limiting the ability of donors to circumvent the estate tax by gifting during their lifetimes. Notwithstanding, there remain differences between estate and gift taxes such as the effective tax rate, the amount of the credit available against tax, and the basis of the received property. There are also types of gifts which will be include in a persons estate such as certain gifts made within the three year window before death and gifts in which the donor retains an interest like gifts of remainder interests that are not either qualified remainder trusts or charitable remainder trusts. The remainder interest gift tax rules apply the gift tax on the entire value of the trust by assigning a zero value to the interest retained by the donor.

Non-taxable Gifts

Generally, the following gifts are not taxable gifts:

• Gifts that are not more than the annual exclusion for the calendar year,
• Tuition or medical expenses you pay directly to a medical or educational institution for someone,
• Gifts to your spouse,
• Gifts to a political organization for its use, and
• Gifts to charities.

Gift Tax Exemptions

There are two levels of exemption from the gift tax. First, transfers of up to (as of 2006) $12,000 per person per year are not subject to the tax. An individual can make gifts up to this amount to as many people as they wish each year, and a married couple can make gifts up to twice that amount, without incurring any gift tax. Second, there is a credit that essentially negates the tax on gifts until a total of $1,000,000 has been given by one person to another (or, as the IRS puts it, "the unified credit against taxable gifts [is] $345,800 (exempting $1 million from tax)".

If an individual or couple makes gifts of more than the limit, gift tax is incurred. The individual or couple has the option of paying the gift taxes that year, or to use some of the "unified credit" that would otherwise reduce the estate tax. In some situations it may be advisable to pay the tax in advance to reduce the size of the estate.

But in many instances, an estate planning strategy is to give the maximum amount possible to as many people as possible to reduce the size of the estate (the effectiveness of this strategy is based on how long it can continue as obviously it cannot continue past death).

Furthermore, transfers (whether by bequest, gift, or inheritance) in excess of $1 million may be subject to a generation-skipping transfer tax if certain other criteria are met.

The United States has a Unified estate and gift tax.

External links

• IRS article, Estate and Gift Taxes
• IRS publication 950, Introduction to Estate and Gift Taxes
• IRS publication 950, Introduction to Estate and Gift Taxes
• IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return
• Instructions for Form 709, Instructions for Form 709
• Instructions for Form 709, Instructions for Form 709

Credits

New World Encyclopedia writers and editors rewrote and completed the Wikipedia article in accordance with New World Encyclopedia standards. This article abides by terms of the Creative Commons CC-by-sa 3.0 License (CC-by-sa), which may be used and disseminated with proper attribution. Credit is due under the terms of this license that can reference both the New World Encyclopedia contributors and the selfless volunteer contributors of the Wikimedia Foundation. To cite this article click here for a list of acceptable citing formats.The history of earlier contributions by wikipedians is accessible to researchers here:

• Gift_Tax  ^history

The history of this article since it was imported to New World Encyclopedia:

• History of "Gift tax"

Note: Some restrictions may apply to use of individual images which are separately licensed.