Gift tax is paid by the donor, not the recipient - Posted by Dave T
Posted by Dave T on July 10, 2002 at 18:32:43:
The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced interest loan, you may be making a gift.
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule.
Generally, the following gifts are not taxable gifts:
- The first $10,000 you give someone during a calendar year (the annual exclusion),
- Tuition or medical expenses you pay for someone (the educational and medical exclusions),
- Gifts to your spouse,
- Gifts to a political organization for its use, and
- Gifts to charities.
A separate $10,000 annual exclusion applies to each person to whom you make a gift. Therefore, you generally can give up to $10,000 each to any number of people each year and none of the gifts will be taxable.
If you are married, both you and your spouse can separately give up to $10,000 to the same person each year without making a taxable gift.
If you or your spouse make a gift to a third party, the gift can be considered as made one-half by you and one-half by your spouse. This is known as gift splitting. Both of you must consent (agree) to split the gift. If you do, you each can take the $10,000 annual exclusion for your part of the gift. Gift splitting allows married couples to give up to $20,000 to a person annually without making a taxable gift.
After you determine which of your gifts are taxable, you figure the amount of gift tax on the total taxable gifts and apply your unified credit for the year.
For example, let’s say that you (are single) and give your parents $50,000 from the sale of your property. The gift tax on $30,000 (the first $10,000 to each parent is excluded from gift taxes) is $6,000. You subtract the $6,000 from your unified credit of $1,000,000 for 2002. The amount of unified credit that you can use against the gift tax in a later year is reduced by $6,000. You do not have to pay any gift tax this year. However, you do have to file Form 709 (a Gift Tax Return).
For more information, you should get Form 709 and its instructions or Form 709-A.