Non-taxable vs. Taxable Gifts

Donations to charity, political organizations, and the majority of other gifts are not taxable. And, many gifts that would ordinarily quality for the gift tax may be structured so that they are not subject to tax. Gifts and rules by category include:

Cash gifts

The 2015 and 2016 annual exclusion is $14,000 per gift event, or $28,000 per married couple. A person may give up to the exclusion amount to as many people as he or she wishes without incurring the gift tax. Gifts from one spouse to another in any amount are not taxable. If a cash gift exceeds the amount of the annual exclusion, the amount in excess of the $14,000 or $28,000 may count toward the $5.43 million lifetime gift amount.

Education and medical expense gifts

Payments for tuition in any amount are not taxable gifts as long as the money is paid directly to the educational institution. If a person wants to pay for books or living expenses, then that amount could fall under the annual exclusion amount. The same is true for medical expenses. Those who want to pay for another’s qualifying medical expense must pay the medical provider directly to avoid exceeding an annual exclusion amount. Qualifying expenses include medical insurance (including long term care), procedures that affect body function or structure, diagnosis and/or treatment of disease, medical care transportation.

Property gifts

Gifts of real estate property can be tricky. For example, if you add a joint tenant to real estate, the gift is taxable if the person receiving the joint tenancy has the right to sever his or her interest and receive half of the property. Whether or not the person actually severs the relationship is irrelevant; it is the right to sever that’s important. Talk with your tax advisor when considering gifts of property.

Loans and debt forgiveness

The gift tax is applicable regarding many loans and payments made on behalf of others. If you loan $10,000 or more at zero interest or less than market rate interest, the loan is considered a gift. And if you make a payment owed by someone else or cancel a debt owed to you, then the gift tax also applies.

Be aware that the person making the gift is the one who pays the tax, not the receiver of the gift. Giving a gift isn’t a tax deduction, unless it is a donation to a qualifying charity. Be sure to alert your tax advisor about gifts because you may need to file Form 709 with your taxes. If you have questions about gifts and the gift tax, please talk with a Salmon Sims Thomas tax advisor.