Gifts & Taxes & Annual Exclusion (NON-CHARITABLE GIFTS)
The current annual gift exclusion allows you (the donor) to give up to $15,000 per person per year (to the recipient or donee) without having to file a federal gift tax return Form 709.
Gifts made to pay tuition or medical bills: to eligible for the annual gift exclusion must be paid directly to the school or health card provider.
If you're married, your spouse can also give up to $15,000 to the same person per year, increasing the total annual gift tax exclusion to $30,000 per person per year without having to file an federal gift tax return. This is known as spousal gift-splitting.
The annual $15,000 limit can be made in a lump sum or with periodic payments throughout the year.
The donor does not get a deduction (charitable deduction) because gifts to people (are not qualified charities).
The donee-recipient does not pay federal income tax on the gift because gifts are tax-free to the recipient.
You have to make your gifts by December 31 and gift checks must also be deposited by December 31 each year.
Gifts above the current $15,000 annual gift tax exclusion do require the donor to file a federal gift tax return Form 709 with the IRS.
Tha annual gift tax exclusion is periodically revised by the IRS and so you will want to be sure you plan your gifts accordingly.
Gifts also remove the money from your estate for federal estate tax purposes (which have a separate set ot tax rules).
Donee Basis in Property & Subsequent Taxation For Donee/Recipient.
The money subsequently earned by the recipient of a gift could be subject to taxation. For example, if the recipient invests the gifted money and then earns investment income such as capital gains, dividends, interest, etc. this would be subject to taxation for the recipient.
Non-Cash Gifts & Recipient Basis Rules:
Property received by gift is referred to as dual basis property. That is, the donee's basis for gain and the basis for loss might not be the same amount.
GAIN BASIS: If the amount realized by the donee in a subsequent sale or disposition of the gifted property exceeds the donor's adjusted basis at the date of gift:
Donee's Gain Basis = donor's carryover adjusted basis.
LOSS BASIS: If the amount realized by the donee in a subsequent sale or disposition of the gifted property is less than the lower of the donor's adjusted basis or fair market value at the date of gift:
Donee's Loss Basis = lower of (A) Donor's adjusted basis or (B) Fair Market Value
NOTE: The amount of the gain basis will differ from the amount of loss basis only if at the date of gift the adjusted basis of the proeprty exceeds the property's fair market value.
NOTE: If the amount realized by the donee from the sunsequest sale or disposition of the gifted property is between the basis for gain and the basis for loss, no gain or loss is realized.
NOTE: In all cases, the donee must make required adjustments to basis while they held the property before they sold or disposed of it.
Donee's Holding Period of Gifted Property:
IF GAIN BASIS WAS USED: The donor's holding period tack's on to the donee's holding period. Thus, the donee's holding period includes both the donor's carryover holding period plus the donee's holding period.
IF LOSS BASIS WAS USED: The donee's holding period begins on the date of the gift.
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