1. What is the federal Gift Tax? (Top)

The federal Gift Tax is imposed on lifetime transfers of property for less than its actual value. IRC §§2501, 2512. In essence, a gift is a transaction where you give something in exchange for nothing in return.

Each United States citizen and resident is allowed a $1 million lifetime "applicable exclusion" against all gifts he or she makes after December 31, 1975, other than those that qualify for the exclusion for medical or educational payments.  IRC §2505. Thus, the fact you are paying for your child’s knee surgery or college education does not constitute a taxable gift.

2. Is there an exclusion amount? (Top)

Yes, in 2010 each person is allowed an exclusion amount of $13,000. In the case of a married couple, they can make a tax-free gift of $26,000 to each donee under certain circumstances in 2009. IRC §2513.

For example, a $50,000 cash gift to your favorite nephew Ezekiel is subject to federal Gift Tax.

3. What is the federal Gift Tax rate? (Top)

The current federal Gift Tax rate is 41-45%. IRC §2001.

4. Who pays the federal Gift Tax? (Top)

Surprisingly the donor pays the entire federal Gift Tax while the donee pays nothing. Rev 9-2008.

For example, if Abraham gave George his brand new Mercedes-Benz for free, Abraham, the donor, would be subject to paying federal Gift Tax while George, the donee, would owe nothing. Rev 9-2008.

5. Do I have to pay federal Gift Tax for charitable donations? (Top)

No, federal Gift Tax is not imposed on charitable gifts provided the donee is an organization described in IRC §2522.

Thus, if Neil donated $100,000 of medical supplies to the Red Cross, he would not be liable for federal Gift Tax.

6. Does federal Gift Tax apply to my $30,000 birthday gift to my spouse? (Top)

No, if the donee spouse is a U.S. citizen there is an unlimited federal Gift Tax deduction and any inter-spousal gifting is exempt from federal Gift Tax. IRC §2523.  

7. I have more federal Gift Tax questions how can they be answered? (Top)

Please call my office at (408) 866-8382 or email me at s.miri(a)mirilaw.com