What are the rules and regulations on “gift tax”?
In general, if you gift more than $13,000 to someone, you will need to file a gift tax return. There are exceptions, depending on who the gift is to or what it is for.
A gift to your spouse doesn’t count. You can buy your spouse a car, for example, and it won’t count as a gift. A charity doesn’t count. The IRS considers it a contribution and it may be deductible on your income taxes. Paying tuition to a school doesn’t count, nor does payment of medical expenses for someone. They do not even have to be family. Those payments have to be made directly to the school or hospital however.
There is an exception for a contribution to a Section 529 plan, which is used to save for college. That payment does not go directly to a school, so it doesn’t get the full waiver described above. You can however elect to “spread” and report the gift over 5 years. Since the annual exclusion to an individual is $13,000, this means you can gift $65,000 ($13,000 times 5) at one time and not have a taxable gift.
If you are married, your spouse can join
you in making the gift. This doubles the $13,000 to $26,000 and makes the maximum contribution $$130,000 instead of $65,000. Your spouse does not need to have “separate money.” You can make an election and the IRS will assume that both spouses donated equally.
If you make a gift over $13,000, don’t necessarily worry about having to pay gift tax. The IRS spots you $5 million over your lifetime. This means that you can gift $5 million over a lifetime, as well as $13,000 per individual per year, before triggering the gift tax. You do have to file a return, however, as the IRS wants to track your transfers.
Why would someone make a gift like this? Say you own an asset that is rapidly appreciating. It may make sense to give it to your beneficiaries now rather than later, when it will be worth considerably more and maybe cause an even higher estate tax. There are also ways to make gifts without giving away the entire asset: family partnerships and certain trusts can be used here.
When finally taxed, the gift rate is 35 percent – the same as the maximum individual income tax rate.Source: www.bbb.org