Taxable gifts

If I give somebody a (relatively) large amount of money, say, $10,000, as a gift, how is the money taxable?

Is it deductable for me? Is it taxable for the person I give it to?

IANATA (I am not a tax attorney) and they are the ones you should ask this, but I’m pretty sure you’re allowed to give up to $10,000 per year to a family member as a tax free gift. That is, they don’t have to claim it as income. However, I don’t belive it’s a deduction for you.

But check with a tax dude(tte).


You can give unlimited gifts to your spouse and up to $10,000.00 to any number of individuals tax-free (to them). You, of course, pay the tax on the money as it is part of your taxable income. No deduction, in other words, for gifts (unless charitable). If the gifts exceed $10,000 you have to file a gift tax return.

A"gift" by definition- is non-deductable to the giver, and non-taxable to the givee. Over 10K you have to file a “gift tax return”- but no actual tax is due until the gift totals some $675,000 (your milage may vary). Gifts to a spouse & to folks within 3 years of (the givers)death, and some other special cases are all exceptions.

Gifts to Charities generally have no limitations, and can usually be deducted- but, technically, they are not “gifts” they are 'contributions".

And, I am a “tax dude”.

Couple of things to add.

If you are married you and your spouse can elect to split your gifts. This means that you can give up to $20,000 per person. (It is assumed to be $10,000 from you and $10,000 from your spouse.)

In addition, you can give unlimited amounts of money for medical payments or education. The money has to be paid directly to the health care provider or school.

I am a “tax babe”. Hi Daniel. :slight_smile:

Tax Dude and Girl…

What about stock? For example, giving a 100 shares of MSFT.

I am under the impression that: a) the gifter actually writes off a capital loss for the cost basis of the gift; 2) the giftee uses that same cost basis and date of purchase to determine long/short term capital gains losses/gains; and 3) the market value of the stock is used to determint he $10000 limit.

But I am not a tax dude so I welcome any clarification.

I think that you might be mixing up stock given as a gift and stock given as a charitable contribution.

As a general rule charitable contributions of stock can be deducted at their fair market value on the date of the contribution by the giver. There is no capital gain/loss on the stock for the giver because the stock was never sold. The charity then uses the same amount as their basis in the stock. There is no limit on charitable contributions.

Gifts of stock for noncharitable purposes are treated the same way as gifts of cash.

I don’t want to contradict a tax guy, but I think that $675,000 may be a lifetime limit, although I actually thought that was a bit higher. $10,000 is the limit that can be given in a single year from one person to another without paying taxes. If that is exceeded, it’s the giver that has to pay a gift tax, and I think it’s on the full amount, not just the part over $10,000.

A couple caveats re: charitable contributions.

To claim them, you must itemize your deductions. Furthermore, your deduction is limited to (generally) 30% of your adjusted gross income in the case of gifts to private foundations, and 50% of your AGI in the case of gifts to public charities.

Otherwise, Zumba and DITWD are right. And as “tax dude” and “tax babe” are taken, you may refer to me as a “tax god”. :smiley:

Greg, it’s always best not to contradict a tax dude, babe or god, especially when you are wrong and said dude/babe/god is correct.

The $10,000 is an annual amount, and the $675,000 is a lifetime amount (which currently is scheduled to rise to $1 million by 2006, but which is likely to rise higher quicker with GWB at the helm). However…

Let’s say in year 1 you give me $10,000. (Thank you.) No tax, no tax return required to be filed.

In year 2 you give me $25,000, and you are not married. The entire $25,000 gift must be reported on Form 709 (Gift Tax Return). The first $10,000 is tax free. The remaining $15,000 is taxable, BUT you apply part of your lifetime credit of $675,000 to that amount. Net result: no tax, and you have only $660,000 of your exemption remaining for use during your lifetime or, if not used, at your death.

Year 3 - you utterly lose your mind and give me $700,000 (and you’re still not married). Again, you file Form 709. The first $10,000 is tax-free. You only have $660,000 of your credit left, but have made $690,000 of taxable gifts. The $30,000 “excess” is taxed at a 37% rate, for a total tax (which you pay) of $11,100.

Net result: you have given me $735,000 and paid gift tax of $11,100, an effective tax rate of 1.51%. You have my undying gratitude, but I still refuse to perform those sexual favors you’ve been hinting at. You get testy, figuring you should get something for your $735,000. I remind you that I offered years ago to pose with the goat, but you scorn my protestations. Things get ugly. The police are called. We, the goat and the ferret end up on the front cover of the National Enquirer. Oh, the humanity!

Zumba & cantrip- excellent & correct answers. Note that the $675K is scheduled to rise thru the upcoming years.

And “contributions of appreciated property” is a very complicated issue. I taught it once, and had a VERY hairy time.

Zumba- well met- come to MPSIMS and we can engage in meaningless but ego-stroking flirting some time. :wink:

Cantrip- since I am usually called the “tax MAN”- I’ll let you have “Tax dude”. I am afraid of lightning bolts with that other title. :smiley:

Whew Cantrip! You can be The Tax God if you like. I don’t have the energy this time of year.

Daniel, I know that contributions of appreciated property are complicated. That is why I always preface my answers with “as a general rule” or “usually”. :slight_smile: I don’t envy you having to teach it.

Meaningless flirting is my favorite kind.

This is wonderful, it’s magical. Get a gift, wonder if we need to include it in our filing, look at the GQ board, have answer without asking question.:slight_smile:

Virtual beers for virtual tax beings

Gifts of capital assets (e.g. stock) include the basis. If, for example, you purchase 100 shares of XYZ for $3000, and it’s now worth $8000, the givee retains your basis and date of purchase (to determine long/short term). For gift tax purposes, the FMV at date of gift determine the gift taxability.

If the stock has gone down in value at the time of the gift: the giver’s basis determines the basis for gain purposes; the FMV at gift time determine the basis for loss purposes. So, if you bought XYZ for $12000 and gave it when it was worth $8500, the givee would treat anything above $12000 as a gain, anything below $8500 as a loss, and anything in-between as neither.

So you can give 10,000 per year to someone, plus 675,000 over the course of your lifetime? Again I really hate contradicting a tax expert, even a self-proclaimed one, but this seems completely preposterous to me. I’m betting there’s some fundamental information we are still missing. Something like it only applies for immediate family members, or it’s the law for Sweden, not the U.S. If I ever get some time, I’ll do some more research into it.

Per the US Master Tax Guide: “The first $10,000 of gifts made by a donor during the calendar year to any donee are not included in the total amount of the donors taxable gifts during that year (Code sec. 2503(b))”. In other words, the first 10K to any person is not even counted- it does not exist. Gift taxes then cut in after 675K of recognized gifts. Gift taxes are not really there to tax gifts- they are there to tax an Estate that is being handed out pre-death.

I am a “certified tax expert”, ie I am “enrolled to practice”- sometimes called just an “E.A.”. My field is Individual taxes- not Estate & gift- but we have to know THAT much about them, anyway.

Cantrip, well said! Should you ever find yourself in California, I’ll stand in the line that would surely form to buy you a drink. But you’ll have to choose, either no goat or no cameras!

OK, I’ve done more research. You’re all right about the first 10,000 being totally exempt. BTW, it was my grandmother, a tax accountant, who told me that if you went a dollar over, you would have to pay gift taxes on the whole amount. So you’ve destroyed a boy’s faith in his grandmother. Congratulations.

Of course, I might have misheard or misremembered, but that would destroy my faith in myself. I’ll stick with the first explanation.

Still, my instincts were correct that there was some bit of information missing. The $675,000 is a lifetime limit per giver. In contrast, the $10,000 is an annual limit per givee, if there is such a word. For example, you can give a million dollars away in a year as long as you split among your 100 closest friends. However, you can only exceed that million per year by $675,000 total during your lifetime. That is, only $6,750 per lucky friend.

Again, I’m sorry to have doubted the tax experts. However, I’m a little wiser through my scepticism. From what you were saying, I would have assumed that the $675,000 applied on a per givee basis.