Gift tax - will it be ever applicable to you?

If you give a large cash gift to someone, it is useful to know the rules on taxation. The rules are very generous and it is very likely that you will never pay the gift tax. 

In 2019 the gift tax exclusion is $15,000 per person per year and $11,4 million per person per lifetime. A gift includes cash, stocks, real estate, land, vehicles.

Any gift below the exclusion limit doesn't have to be reported to IRS. 

Any gift above the exclusion will need the IRS Form 709 to disclose the gift at the time you file taxes.  Check if your state also requires you to report gifts over the limit (very few do).  
The person receiving the gift doesn't have to report the gift. 

If you give more than the limit, the amount over the limit will be recorded against the life time limit. So if you give your daughter $40,000 in one year, $15,000 will not be counted, and the sum exceeding that - the $25,000 will be reported and the records will be kept and will be counted against the life time limit. Later when she inherits your estate, her limits for estate tax will be lowered by that amount. 

If you (unlikely) use up your life time exclusions, you will have to pay the gift tax of 18%-40%. The person giving the gift will have to pay the tax.  

If gifted property is sold, a capital gains tax can be triggered.

If you add your child to your checking account, half of the money in the account will be considered a gift.

If you sell your relative a house below the market value, the difference will be taken out of the life time limit. 

Things that are not considered gifts:
- Anything given to a spouse (who is US citizen)
- Anything given to a dependent 
- Charitable or political donations
- Funds paid directly to medical service or health insurance provider, or funds paid directly to educational institutions (tuition only) on behalf of someone else


If you want to give someone a gift to help with education costs, you might give more than the yearly limit. The IRS allows taxpayers to give $75,000 into a 529 plan without paying tax or reducing the $11.4 million lifetime limit.