Gifts and inheritances. In most cases, property you receive as a gift, bequest, or inheritance isn't included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited, or distributed to you, that income is also taxable to you. If the gift, bequest, or inheritance is the income from the property, that income is taxable to you.
Holiday gifts. If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, don’t include the value of the gift in your income. However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved.
The giver of the gift does not have to pay tax on gifts that are less than the annual exclusion limit, which generally changes every year. Currently, the annual exclusion is $14,000 per recipient. In other words, you can give up to $14,000 to each of your children this year without having to pay any gift tax.
Thus, if you don’t have to show the gifts on your 1040, it’s not MAGI income for Covered CA. We are not attorney’s or tax advisers – double check with your professional adviser.
- Who pays the gift tax?
- What is considered a gift?
- What can be excluded from gifts?
- May I deduct gifts on my income tax return?
- How many annual exclusions are available?
- What if my spouse and I want to give away property that we own together?
- What other information do I need to include with the return?
- What is “Fair Market Value?”
- Whom should I hire to represent me and prepare and file the return?
- Do I have to talk to the IRS during an examination?
- What if I disagree with the examination proposals?
- What if I sell property that has been given to me?
- Can a married same sex donor claim the gift tax marital deduction for a transfer to his or her spouse?
Tax Tips to Help You Determine if your Gift is Taxable
If you gave money or property to someone as a gift, you may wonder about the federal gift tax. Many gifts are not subject to the gift tax. Here are seven tax tips for gifts and the gift tax.
- Nontaxable Gifts. The general rule is that any gift is a taxable gift. However, there are exceptions to this rule. The following are nontaxable gifts:
- Gifts that do not exceed the annual exclusion for the calendar year,
- Tuition or medical expenses you paid directly to a medical or educational institution for someone,
- Gifts to your spouse
- Gifts to a political organization for its use, and
- Gifts to charities.
- Annual Exclusion. For 2015, the annual exclusion is $14,000. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you give a gift to someone else, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion for the year.
- No Tax on Recipient. Generally, the person who receives your gift will not have to pay taxes on it.
- Gifts Not Deductible. Making a gift does not ordinarily affect your taxes. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
- Forgiven Debt and Certain Loans. The gift tax may also apply when you forgive a debt or give a loan that is interest-free or below the market interest rate.
- Gift-Splitting. You and your spouse can give a gift up to $28,000 to a third party without making it a taxable gift. You can consider that one-half of the gift be given by you and one-half by your spouse.
- Filing Requirement. You must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply:
- You gave gifts to at least one person (other than your spouse) that amount to more than the annual exclusion for the year.
- You and your spouse are splitting a gift. This is true even if half of the split gift is less than the annual exclusion.
- You gave someone (other than your spouse) a gift of a future interest that they can’t actually possess, enjoy, or from which they’ll receive income later.
- You gave your spouse an interest in property that will terminate due to a future event.
For more information, see Publication 559, Survivors, Executors, and Administrators. You can view, download and print tax products on IRS.gov/forms anytime. Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.
3. There Are Also Educational and Medical Exclusions
Payments that you make on someone’s behalf for qualified tuition or medical expenses do not count towards the annual limit for gift tax purposes. However, your payment(s) must be made directly to a qualifying educational organization or medical care provider in order to qualify for the exclusion. You can also place funds directly into a 529 education savings plan to avoid the gift tax — but note that certain rules apply.
Learn More ⇒ IRS.com (NOT a government Site!)
Links & Resources
Publication 559 PDF (HTML) Survivors, Executors, and Administrators IRS publication 950, Be careful, might be out of date – Introduction to Estate and Gift Taxes • Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return • Instructions for Form 709 Wikipedia on Gift Taxes 26 USC 102 Gifts & Inheritances Cornell Law Website
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