Gift Tax Limit
Gift Tax Limit
Gift Tax Limit
When a person transfers property to another person while receiving less than full value, or nothing, in return, the donor may have to pay a gift tax. Whether the transfer is intended to be a gift or not, the gift tax applies. If any property (including money) is given or any property is used or income from any property is given without the expectation of receiving a compensation of at least equal value in return, it’s considered a gift. Additionally, a gift may have been made when a person makes a reduced-interest or interest-free loan or sells something below its full value.
For the year 2011, the gift tax limit is set at $13,000 per person, per annum. This means that you can give up to $13,000 worth of property to any number of people in a year. As long as the gift is $13,000 or less, you will not be required to pay any gift tax. With the annual gift tax limit, a person can give $13,000 worth of property to 100 individuals each year without incurring any gift tax. On the other hand, a person who gives $1,300,000 to a single person will have to pay a gift tax for the amount which exceeds the gift tax limit of $13,000, which is calculated to be $1,287,000. Now, things get more interesting.
There’s also the matter of the lifetime gift tax exemption. In 2010, the lifetime gift tax exemption was $1 million. From 2011, the lifetime gift tax exemption has increased 5 times, bringing the new figure to $5 million. What does it mean? Using the previous example, a person who made a gift of $1.3 million to a single person in 2010 would have to pay a gift tax for the $287,000, which is above the annual gift tax limit of $13,000 and the lifetime gift tax exemption of $1 million. The tax rate for gifts ranges from 18 percent to 35 percent and it’s always payable by the donor of the gift.
Now, let’s take a look at the same case where a person gives a one-time gift of 1,300,000 to a person in 2011. As explained earlier, the amount is $1,287,000 above the annual gift tax limit. However, the new lifetime gift tax exemption for 2011 is $5 million. In this case, the donor of the gift does not have to file a gift tax form because $1,287,000 is less than $5 million. The remaining lifetime tax credit exemption is calculated to be $3,713,000. It means that the person can continue to exceed the annual gift tax limit by this amount before he or she has to file for the gift tax.
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When it comes to gift tax, it’s worth remembering that married couples can give a combined total of $26,000 to a single person in 2011. If the couple chooses to do gift splitting, the total amount will be split one-half for the husband and one half for the wife. If the total amount of the gift exceeds the annual tax gift limit of $13,000 but below or up to $26,000, the couple does not have to pay any gift tax but they will have to file a gift tax return separately.
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