Is That Gift Taxable?

Gift tax background removedThat nice check you sent to your niece when she graduated from college, and that plot of land you gave to your brother-in-law so he could build a vacation home – both could result in you having to pay a gift tax. But the donation you made to your favorite charity should not result in your getting a tax bill.

While some gifts are not subject to the gift tax, there are many more gifts that will end up costing you more than their value in the form of a gift tax. Here is a brief overview to help you determine which gifts may be subject to the gift tax, and which can be given freely.

  • No Tax Due. In general, most gifts are considered taxable. There are some notable exceptions:
    • Gifts to your spouse
    • Gifts to a political organization for its use
    • Gifts to charities
    • Tuition or medical expenses paid directly to a medical or educational institution for someone else
    • Gifts that do not exceed the annual exclusion for the calendar year (for 2014 and 2015 the annual exclusion is $14,000)
  • No Tax on the Recipient. Happily, the person who receives your gift is not liable for a federal gift tax, nor does he or she have to pay income tax on the value of the gift received.
  • No Deduction Allowed. Other than allowable charitable contributions, your gift cannot ordinarily be deducted from your federal income tax.
  • Forgiving a Debt or Loan. When you forgive a debt or loan that was made interest-free or below the market interest rate, you may be subject to the federal gift tax on the amount forgiven.
  • Half and Half. Based on the annual gift exclusion currently in place ($14,000), you and your spouse can give a gift up to $28,000 to a third party without it being taxable. One half of the gift is considered as coming from you and the other half from your spouse.

You must file an IRS Form 709 by April 15th unless you file an extension if any of the following apply:

  • You gave gifts to at least one person (other than your spouse) that amount to more  than your annual exclusion for the year
  • You and your spouse are splitting a gift, even if half of the split gift is less than the annual exclusion
  • You gave someone (other than your spouse) a gift of a future interest that they can’t actually possess, enjoy, or from which they’ll receive income later
  • You gave your spouse an interest in property that will terminate due to a future event

For more information on the federal gift tax or any other tax issue, please contact Gray, Gray & Gray’s Tax Department at (781) 407-0300.

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