Gift Tax

What is a gift?

The Gift Tax applies to the lifetime transfers of property from a donor to donees. If you are the donor of a gift over the annual exclusion, you are responsible for filing the Gift Tax Return, Form 709, and paying any applicable tax.

A gift is the transfer of something of value when full consideration is not received in return. Gifts can be as simple as giving someone cash or property or can involve more complex situations such as selling an asset to someone else for less than fair market value, making a loan without interest, or charging a below market interest rate.

What is not a gift?

The following are not taxable gifts and therefore are not subject to the gift tax:

  • Any gift not exceeding the annual exclusion
  • Tuition or medical expenses for someone else (paid directly to the institution)
  • Gifts to your spouse (if spouse is a U.S. citizen)
  • Gifts to certain types of political organizations and charities

Annual Exclusion

The annual exclusion for gift transfers made in 2021 is $15000 per person (recipient). The exclusion increases to $16,000 for gifts made in 2022. You may exclude these amounts for gifts made to any number of donees. However, any gift amount above the threshold is subject to gift tax filing and reporting with the IRS.

Gift Splitting

Spouses can choose to split a gift, allowing married couples to make a non-taxable gift in 2022 of up to $32,000 to each donee. Each spouse must file a Gift Tax Return, Form 709, to report the gift splitting agreement.

The Basic Exclusion and Applicable Credit

There is more good news! Taxable gifts that are above the annual exclusion can be reduced further until the applicable credit is exhausted. The applicable credit is equal to the tax on the basic exclusion amount of $11,700,000 in 2021, resulting in a credit for individuals in 2021 of $4,625,800. Utilization of the applicable credit in current and prior years will reduce the credit available in later years. However, the credit can be increased by amounts left unused by a deceased spouse.

Keep in mind that future exclusion and credit amounts are always subject to change.