Saturday, March 29, 2008

The U.S. Gift Tax

If you give someone money or property during your life, you may be subject to federal gift tax. 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.

A person can give any number of gifts of less than $13,000 in 2010 (this amount is also for 2011 and 2012) to any number of persons in a year. No tax is payable on gifts of up to the annual exclusion limit of $13,000. The person who receives a gift of any amount does not pay or report the gift. The donor may have to pay the gift tax or file gift tax return if the gift amount exceeds the annual exclusion limit.

The maximum gift tax rate for 2007, 2008 and 2009 is 45%. The maximum gift tax rate for 2010, 2011 and 2012 is 35%.

If you are married, both you and your spouse can separately give up to $13,000 to the same person in 2010 without making a taxable gift. If any gift exceeds $13,000 in a year, you must file gift tax return. However, there is a life time exclusion amount. The exclusion amount for gifts made in 2010 is $1,000,000, for gifts made in 2011 is $5,000,000, and for gifts made is 2012 is $5,120,000.

When You Receive a Gift
Any gift or estate received by you is not treated as income. You, the receiver of the gift, do not file any gift tax return or pay any gift tax. Any property you receive as a gift is not included in your income. However, if the property you received this way later produces income such as interest, dividends, or rents, that income is taxable to you. A receiver of the gift may be required to file Form 3520 to report the gift if the gift is from foreign sources and the amount exceeds a certain limit.

Gift to Spouse
For calendar year 2010, the first $134,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under §§ 2503 and 2523(i)(2) made during that year. This amount is $136,000 for year 2011 and $ 139,000 for year 2012. If your spouse is a U.S. citizen, then there is no limit to the amount of gift you can give to your spouse.

Some States do collect tax on gifts from the person who received the gift. So for the state tax you must check at your state web site.

Unified Credit (Gift Exclusion Limit)The unified credit against taxable gifts during your lift time is $345,800 (exempting $1 million of gifts amount from tax). Any unified credit you use against your gift tax in one year reduces the amount of credit that you can use against your gift tax in a later year. The total amount used during life against your gift tax reduces the credit available to use against your estate tax.

Your Basis of Property Received as a Gift
To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you and any gift tax paid on it.

1. FMV less than donor's adjusted basis. If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property.

2. Business property. If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property.

2. FMV equal to or greater than donor's adjusted basis. If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Increase your basis by all or part of any gift tax paid, depending on the date of the gift.

Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return
All gifts of more than annual exclusion amount ($13000 for 2010) must be reported by the donor. There is a lifetime exclusion of $1 million. A person making a gift in excess of $13K must include the gift in the lifetime exclusion and file Form 709 to document the gift. This exclusion will reduce your Estate Tax exclusion amount.

Gift form Foreign Sources
In the U.S., the person who receives a gift does not pay the tax of the gift received. This is true even if the gift is coming from a foreign country. In case of a gift from a foreign country, if the donor is a foreign person (no SSN or ITIN), they need not worry about the U.S. tax on donor of the gift since they do not have any obligation to file the U.S. tax return. However, since it is coming from a foreign country, the IRS wants to make sure that it is a actually a gift. So the receiver of the gift from foreign sources must file File 3520 Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts if the amount if the total gifts received in 2007 is more than $100,000.

For more information read, Publication 950-- Introduction to Estate and Gift Taxes. http://www.irs.gov/

List of Articles on U.S. TaxesYour Filing Status
1. Filing Status for Married
2. Filing Status: Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent
3. Filing W4 Employee’s Withholding Allowance Certificate
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Adjustments -- Retirement Plans
1. Trad IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
2. Moving Expenses
3. Itemized deductions
4. Student Loan Interest Deductions
Status of Your Tax Refund
1. When will I get my tax refund?
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
2008 Economics Stimulus Act
1. Are You Eligible for 2008 Stimulus Tax Rebate Payment?
2. 2008 Economics Stimulus Act -- Benefits to Businesses

Tax for Aliens
1. U.S. Tax Filing Requirements for Non-Residents
2. Substantial Presence Test
3. Social Security and Medicare (FICA) Taxes for Non-resident Exempt Individual
4. U.S. Tax Treaties for Professors, Teachers and Researchers
5. U.S. Tax Treaties for Students and Apprentices
6. Mandatory Reporting of Foreign Bank and Financial Accounts

Any Question?If you have a question, send me an email: ustaxfiling@gmail.com
Forum for India Taxes http://www.mytaxes.in/

6 comments:

Anonymous said...

I am a U.S. citizen. I want to give a gift of $100,000 to my spouse. Do I file gift tax return?

Mukat D. Aggarwala said...

Yes, you can give a gift of $100,000 to your spouse without any gift tax implication. If your spouse is a U.S. citizen, there is no limit to the amount of gift you can give. If your spouse in non U.S. citizen, then the limit in 2009 is $133,000.

Anonymous said...

What if my donor is a non-US citizen but has a bank account in the US and gives me more than $13,000 gift for downpayment of a house, will the donor have to file a tax return for this?

MyTaxes Team said...

If the donor is a U.S. person (citizen or resident), the donor must file gift tax return. If the donor is a foreign alien, then no gift tax return is required.

Anonymous said...

I have a $300,000 IRA that will expire at the end of February 2011 I want to cash it out and give my 3 children $100,000 each. Exactly how much gift tax will I have to pay?

MyTaxes Team said...

You must file gift tax return as gift amount to an individual is more than $13,000. You will still not pay any gift tax as there is a life time exclusion limit of 1 million.