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Information on the Gifting of Money or Property
This enews covers factors to consider regarding the gifting of money or property. Generally, gifts are considered taxable if they are over the annual exclusion, see below. That being said, gifts that are over this amount often are still not taxed, since there is lifetime gift tax exclusion allowed to each individual that you can dip into. In other words, it is taxed, but then the tax is reduced to zero by a tax credit. To get your tax credit benefit, you need to file a gift tax return for the tax year that you had any gift that was over the annual limit. There are some exceptions to this requirement as follows:
• Gifts given to a spouse.
• Gifts given to a charitable organization.
• Tuition or medical expenses paid on behalf of someone else as long as they are paid to a legitimate medical or educational institution.
• Gifts that do not exceed the annual exclusion amount set for that tax year
• Contributions to political organizations
In the event that you give a gift to that is not included in the exceptions above, it is important to pay attention to whether or not it exceeds the annual exclusion for that tax year. For example, in 2010, the annual exclusion was $13,000. If the gift does exceed this limit, you are required to file a gift tax return. Under most circumstances, the recipient of the gift will not have to pay income or gift tax on the value of the gift.
If you and your spouse would like to make a gift larger than the annual exclusion amount, you can do what is called gift splitting. In this way, together you can make a gift of up to $26,000 without having it considered taxable. In order to do this, you and your spouse must file a Form 709, or a gift tax return, to show that you both agree to split the gift.
Other reasons you may be required to file a gift tax return:
• You gift your spouse interest in property that will terminate due to a future event.
• You give someone besides your spouse interest the they cannot possess until a later date.
• You give gifts to someone other than your spouse that exceed the annual exclusion.
• You and your spouse split a gift.
Note: It is important to remember that only gifts to qualified charitable organizations are considered deductible from your individual tax return. Any other types of gifts should not affect your federal tax return.
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