When you give a friend or family member property, you could be making a taxable gift. The Internal Revenue Service (IRS) requires taxes on “gifts” of property, including cash, real estate, and other assets. Even if you do not intend for the asset to be a gift, the tax still applies. It can apply even if you sell someone an asset for less than its going value. The IRS is actually taxing you on the transfer of property. It does not matter what kind of property it is, including the use of income from the property. The gift tax is also attached to interest-free and reduced interest loans.
If you are planning on transferring property, whether for a discounted amount or free, be sure to speak to one of the tax attorneys at France Law Firm before you make the transfer.
Gift Tax FAQs
Who pays the gift tax?
The person giving the gift – the donor – pays the gift tax. However, if you make special arrangements, the receiving party could pay the tax. Be sure to consult with a tax attorney before making such an agreement.
Are there any exclusions from being taxed on gifts?
Yes. If your gifts do not exceed the annual exclusion amount, you do not pay tax. The amount changes yearly, so keep track of the gifts you give and know the yearly exclusion amount. For 2021, the annual exclusion amount is $15,000 per person and $30,000 per couple. Thus, you could give each of your three children $15,000 for 2021 and not have to pay a gift tax.
Also, medical and education gifts are excluded, which means that you can pay someone’s tuition or medical expenses. Gifts to your spouse, a charitable organization, or a political organization are also exempt from the gift tax.
Is the value of gifts tax-deductible?
Usually, only charitable gifts are tax-deductible. If you are not sure whether your gift falls under gift tax laws or estate tax laws, or which would better benefit you, contact the asset protection attorneys at France Law to discuss your gift.
What is the gift tax limit for a married couple?
If you file jointly, the gift tax limit is $30,000.
How much tax do I pay if I gift property that was gifted to me?
You pay tax on the profit. For example, if your brother gifted you with 100 shares of XYZ stock at $10 per share and you give the stock away when it is $50 per share, you would pay a gift tax on $40 per share. The same applies if you sell the stock. Usually, your basis is the same basis as the donor’s basis when he or she gifted you the asset.
What is fair market value?
While people would like fair market value to be what they want for an asset, that is rarely true. Fair market value is the price at which an asset would sell to a willing buyer. In some cases, the amount could be lower than average or higher than average. It depends on how much the buyer wants the asset and the condition of the asset. The fair market value is not the “forced” sale price or the “sale” price at a market that is much lower than the item would normally sell for based on the condition of the items.
Can I use the gift tax to reduce my estate tax?
In some cases, you can gift assets to reduce your estate tax. For example, the 2021 estate tax limit is $11.7 million. You would have to pay the estate tax on $300,000. If you are single and you gift $15,000 to six people, you would reduce the taxable amount from $300,000 to $210,000.
Contact France Law Firm for Tax Advice
If you need to set up an estate, make changes to an estate plan, or need help managing your money to get the best tax rate, contact our business tax attorneys, tax attorneys, and probate attorneys at France Law Firm for a consultation.