Beyond the Annual Gift Tax Exclusion
My other post explains how the gift annual exclusion works. What happens if your gift, such as a car, which has a value higher than $13,000 exclusion (2009)? Does it make it taxable gift?
The answer is yes, but… It is taxable but you don’t necessarily owe any tax. Each person is entitle to a $1 million life time gift exemption. Whenever you go over the annual exclusion for one person, the excess will be counted against the life time gift exemption amount.
For example, you give $13,000 to your son, and a brand new car to your daughter, and the car has a value of $23,000. You are fine because you and your wife can give $26,000 per person (the receiving person), so each gift is under that threshold.
If the value of the car is instead $33,000, you will have $7,000 excess. You can use your $1 million exemption to offset it, and still ending up with no gift tax. Remember though, this is a life-time amount, so next year, if you have another $7,000 excess, your total available exemption amount will be $14,000 lesser.
Yes, you have to file Form 709 – Gift Tax Return to report gifts over the annual exclusion. The due date is the same as the income tax returns, April 15. You may file extension as well.
There is nothing to file or to pay for the person receiving the gift. All these hassles stay with the person who is doing the gifting. To the person who is giving, there is no income tax benefits, meaning he can not take any deduction for the gift. It only helps on the estate planning.
Gifts to charitable organization is totally different thing. Those gifts are tax deductible and only reportable in your regular income tax returns, and they won’t be counted against your gift annual exclusion and life time limit.
More from Ask Matt CPA
- Gift Tax Exclusion
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