The gift tax is a federal tax imposed on free transfers of property between individuals. It applies to the transfer of money, property, or the income generated by the property. It is calculated at 40% of the amount of the gift, and it applies when the value of the transfer is less than the fair market value of the asset. The tax is paid in addition to any other taxes on the transfer.
Most gifts are tax-exempt. However, when you give large sums to other people, you must file a gift tax return. In most cases, you will not owe the tax on your gift, as the donor is responsible for paying the tax. However, if the gift exceeds $11.6 million, it is subject to the tax.
If you are making large gifts, you should first check the requirements for gift tax. A gift of money for college, for example, is considered a large gift. However, you must make sure to spend the money after you give it. If you don’t want to owe the gift tax, you can hire a professional estate planner to help you make the proper decisions. They will help you choose the right beneficiaries for your gift.
You should also know that your gifts to a qualified educational organization will be exempt from the gift tax. A qualified educational organization must have a regular faculty and curriculum, as well as a regularly enrolled student body. For more information, see section 170b.(1)(A) and regulations.
There are some changes to the gift tax that you should know about. The exemption amount has been doubled through 2025. This means that you can leave up to $11.7 million without paying the gift tax. This exemption amount also applies to gifts made before 2025. You can also transfer unused exemption to your surviving spouse. This will help you keep more of the money you give to your beneficiaries and minimize the tax.
The gift tax is different for each person. It applies to all types of gifts, not just those made to charity. For example, if you sell a house for significantly less than its fair market value, it is considered a gift. If you give money to a married person, you may be required to file a gift tax return. This rule also applies to gifts made to a deceased donor.
Generally, gifts to one person over $15,000 are not subject to the gift tax. However, if you make a gift of more than $15,000 to the same person, you must file a gift tax return and pay any tax owed by April 15th. This is called a “qualified transfer” under IRS regulations. It is important to understand the tax implications before making a gift.
The IRS has a right to challenge the valuation of a gift for three years after the gift has been made. This gives the IRS unlimited time to adjust the value of the gift. If the IRS finds out, for example, that you gave a $15 million business interest to your grandmother, they could assess you with gift taxes plus penalties and interest.
