Gifts and Taxes

It seems simple enough. You give a gift or receive a gift. What about taxes? Do you have to pay taxes when you receive a gift? What if it is a lot of money? Do you pay taxes if you give a gift?

Before answering these questions, let’s figure out what qualifies as a gift. The IRS says:

The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not.

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.

Do you pay tax if you receive a gift?

Generally, no. Taxes are paid by the person giving the gift.

Do you pay taxes if you give a gift?

The answer to this question depends on the amount of the gift. The annual exclusion for 2014, 2015, 2016 and 2017 is $14,000. This amount is per individual per gift. As an example, if two parents wish to give a gift to their two children, then they can give each child $28,000 (2 X $14,000.) If the gifts are greater than the annual exclusion amount, then gift tax may apply. Taxpayers should file Form 709.

Still confused? See the link below for answers from the IRS, and contact your CPA or tax professional.

IRS Frequently Asked Questions on Gift Taxes

 

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