It is a common belief that the recipient of a taxable gift has to pay the tax.
Federal tax law is different than that: the person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value. Instead, if you recently gave any one person gifts that are valued at more than $12,000, you – the maker of the gift – must report the total gifts to the Internal Revenue Service and you may have to pay tax on the gifts.
If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift. Gifts also include money and property, including the use of property without expecting to receive something of equal value in return.
There are some exceptions to the tax rules on gifts. The following gifts generally are not taxable and do not count against the $12,000 annual limit:
Tuition or Medical Expenses that you pay directly to an educational or medical institution for someone’s benefit
Gifts to your Spouse
Gifts to a Political Organization for its use
Gifts to Charities
If you are married, both you and your spouse can give separate gifts of up to the annual limit of $12,000 to the same person without making a taxable gift. In other words, you and your spouse can give one of your children (or anyone else for that matter) a $24,000 gift of cash or other property during any one year without paying any gift tax. This is commonly known as splitting gifts between spouses. Essentially, it means a gift by you or your spouse to a third person can be considered as made one-half by each of you provided there is consent by both spouses.
For more information, get the IRS Publication 950, Introduction to Estate and Gift Taxes, IRS Form 709, United States Gift Tax Return, and Instructions for Form 709. They are available at the IRS Web site at IRS.gov in the Forms and Publications section or by calling 800-TAX-FORM (800-829-3676).
Gift tax planning often requires the help of a qualified tax lawyer. Please call attorney Mitchell A. Port at 310.559.5259.