What are the Gift Tax Exemptions?

gifts tax

Any time you give someone money or property you may be subject to paying a gift tax. The federal government has established guidelines for gift tax exemptions and gift tax rates for all property transferred.

Starting in 2006 the IRS determined that gifts under $12,000 per year were exempt from federal gift tax, which is an increase from the $10,000 limit set for years prior. If you give a gift valued over this amount your gift will be taxed at the current gift tax rate of eighteen percent. Federal gift tax laws also state that there is a lifetime deduction amount of $2 million.

What is ther definition of a “GIFT”?

First, your gift must be gratuitous. Your gift must also be complete and voluntary. If you are being court ordered to put aside money for your children this is not considered a gift. Lastly, the gift you make must be tangible. According to current gift tax laws, an exchange of services is not considered a gift.

Stipulations on gifting for tax exemptions

You are allowed to give both Little Johnnie and Little Susie gifts of up to $12,000 each per calendar year and still be exempt from the federal gift tax. Most people will never have to pay a gift tax based upon the federal guidelines previously mentioned. Several gifts are considered exempt from the gift tax assuming they meet particular guidelines. The exemptions, in no particular order, are as follows :

1. Gifts made to pay for tuition and/or medical expenses

2. Gifts to your spouse

3. Gifts to a charitable organization

Afoiding gift tax within the family

Gifts between spouses can be unlimited. Additionally, spouses can pool their annual exclusion limits to give a larger gift to an individual or group of individuals. Now, instead of $12,000 per year, each child can receive $24,000 in gifts and both parents will still not be subject to paying any gift taxes.

Medical expenses exempt from the gift tax

In order to qualify for a gift tax exemption the money must be paid directly to the medical facility and not to the individual who received services as reimbursement. The money gifted for medical expenses cannot be covered, and therefore reimbursed, by insurance.

Chartitable organizations and the gift tax

Gifts made to qualified charitable organizations may also be unlimited. When filing your income tax return you will have a separate section for listing items which qualify for a charitable gift tax deduction.

You may want to check out my other guide on Graduation Gifts and Coffee Gift Basket.