Below are some of the more common questions and answers about Gift Tax
issues. The laws on Estate and Gift Taxes are considered to be some of the most
complicated in the Internal Revenue Code. For further guidance, we strongly
recommend that you visit with an estate tax practitioner (Attorney or CPA) who
has considerable experience in this field. You may also find additional
information in Publication 950 or
some of the other forms and publications offered on our Forms Page. Included
in this area are the instructions to Forms 706 and 709. Within these
instructions, you will find the tax rate schedules to the related returns.
Who pays the gift tax?
The donor is generally responsible
for paying the gift tax. Under special arrangements the donee may agree
to pay the tax instead. Please visit with your tax professional if you are
considering this type of arrangement.
What is considered a gift?
Any transfer to an individual, either
directly or indirectly, where full consideration (measured in money or money's
worth) is not received in return.
What can be excluded from gifts?
The general rule is that any gift
is a taxable gift. However, there are many exceptions to this rule. Generally,
the following gifts are not taxable gifts.
Gifts that are not more than the annual exclusion for the calendar
Tuition or medical expenses you pay for someone (the educational and
Gifts to your spouse.
Gifts to a political organization for its use.
In addition to this, gifts to qualifying charities are deductible from the
value of the gift(s) made.
May I deduct gifts on my income tax return?
Making a gift or
leaving your estate to your heirs does not ordinarily affect your federal income
tax. You cannot deduct the value of gifts you make (other than gifts that are
deductible charitable contributions). If you are not sure whether the gift tax
or the estate tax applies to your situation, refer to Publication 950,
Introduction to Estate and Gift Taxes.
How many annual exclusions are available?
The annual exclusion
applies to gifts to each donee. In other words, if you give each of your
children $11,000 in 2002-2005, $12,000 in 2006-2008, and $13,000 on or after
January 1, 2009, the annual exclusion applies to each gift.
What if my spouse and I want to give away property that we own
You are each entitled to the annual exclusion amount on
the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000
(2006-2008), $26,000 (effective on or after January 1, 2009).
What other information do I need to include with the return?
to Form 709 (PDF), 709 Instructions and
Among other items listed:
Copies of appraisals.
Copies of relevant documents regarding the transfer.
Documentation of any unusual items shown on the return (partially-gifted
assets, other items relevant to the transfer(s)).
What is "Fair Market Value?"
Fair Market Value is defined as: "The
fair market value is the price at which the property would change hands between
a willing buyer and a willing seller, neither being under any compulsion to buy
or to sell and both having reasonable knowledge of relevant facts. The fair
market value of a particular item of property includible in the decedent's gross
estate is not to be determined by a forced sale price. Nor is the fair market
value of an item of property to be determined by the sale price of the item in a
market other than that in which such item is most commonly sold to the public,
taking into account the location of the item wherever appropriate." Regulation
Who should I hire to represent me and prepare and file the
The Internal Revenue Service cannot make recommendations about
specific individuals, but there are several factors to consider:
How complex is the transfer?
How large is the transfer?
Do I need an attorney, CPA, Enrolled Agent (EA) or other
For most simple, small transfers (less than the annual exclusion amount) you
may not need the services of a professional.
However, if the transfer is large or complicated or both, then these actions
should be considered; It is a good idea to discuss the matter with several
attorneys and CPAs or EAs. Ask about how much experience they have had and ask
for referrals. This process should be similar to locating a good physician.
Locate other individuals that have had similar experiences and ask for
recommendations. Finally, after the individual(s) are employed and begin to work
on transfer matters, make sure the lines of communication remain open so that
there are no surprises.
Finally, people who make gifts as a part of their overall estate and
financial plan often engage the services of both attorneys and CPAs, EAs and
other professionals. The attorney usually handles wills, trusts and transfer
documents that are involved and reviews the impact of documents on the gift tax
return and overall plan. The CPA or EA often handles the actual return
preparation and some representation of the donor in matters with the IRS.
However, some attorneys handle all of the work. CPAs may also handle most of the
work, but cannot take care of wills, trusts, deeds and other matters where a law
license is required. In addition, other professionals (such as appraisers,
surveyors, financial advisors and others) may need to be engaged during this
Do I have to talk to the IRS during an examination?
You do not have
to be present during an examination unless IRS representatives need to ask
specific questions. Although you may represent yourself during an examination,
most donors prefer that the professional(s) they have employed handle this phase
of the examination. You may delegate authority for this by executing Form 2848
"Power of Attorney."
What if I disagree with the examination proposals?
You have many
rights and avenues of appeal if you disagree with any proposals made by the
IRS. See Publications
1 and 5 (PDF) for an explanation of these
What if I sell property that has been given to me?
The general rule
is that your basis in the property is the same as the basis of the donor. For
example, if you were given stock that the donor had purchased for $10 per share
(and that was his/her basis), and you later sold it for $100 per share, you
would pay income tax on a gain of $90 per share. (Note: The rules are different
for property acquired from an estate). [ Link to Estate Tax
Most information for this page came from the Internal Revenue Code: Chapter
12--Gift Tax (generally Internal Revenue Code §2500 and following, related
regulations and other sources)
If you have suggestions or comments (or suggested FAQs) for the Estate and
Gift Tax web site, please contact us: CONTACT ESTATE AND GIFT TAX. We will
not be able to respond to your email, but will consider it when making
improvements or additions to this site.
Note: This page contains one or more references to the
Internal Revenue Code (IRC), Treasury Regulations, court cases, or other
official tax guidance. References to these legal authorities are included for
the convenience of those who would like to read the technical reference
material. To access the applicable IRC sections, Treasury Regulations, or other
official tax guidance, visit the Tax Code, Regulations, and Official
Guidance page. To access any Tax Court case opinions issued after September
24, 1995, visit the Opinions
Search page of the United States Tax Court.