Gifts, as it relates to estate planning, can be tricky. Children may remember their parents telling them at some point in their lives (usually, on Christmas after being disappointed when Santa messed-up and got them the wrong present) that it is better to give than to receive. Well, while your parents may have simply been trying to make you feel better, the IRS also followed the mantra that it is better to give than receive when they created the tax law code because most gifts are not subject to gift tax.
Gifting property can be used as an estate planning tool to maximize tax benefits now and in the future.
Gifts Not Subject to Gift Tax
There are some gifts that don’t affect taxes, such as a gift to a:
- Spouse in unlimited amounts
- Medical or Educational institution for someone
- Recognized charity (Church, Medical Association (i.e. American Cancer Society), and/or Environmental Group (i.e. Sierra Club)
- Political organization for its use
- Person (other than spouse) that does not exceed $13,000 per year (for 2012) (increasing to $14,000 per year in 2013)
There is no income tax payable by the party receiving the gift (donee). Donee does not pay any gift tax.
Tax Deductions or Gift Tax Return
A gift may be deductible on your tax return; otherwise, it does not affect your tax return. However, a gift tax return is required if:
- A gift to someone (other than spouse) exceeds $13,000 per year (for 2012); or
- A gift cannot be used until sometime in the future.
You can split a gift, so that you and your spouse can each give up to $13,000 per year to someone. Even if a gift tax return is required, there are exceptions that may eliminate the payment of a gift tax.
Gift Deeds of Real Property Carry Special Rules
Lastly, the IRS is closely investigating Gift Deeds of real property, so if one is made, please contact your tax or estate planning professional. For more information, see IRS’s Frequently Asked Questions on Gift Taxes.