Gift Taxes and the Annual Exclusion

Federal gift tax applies to lifetime direct or indirect transfers of real or personal property. Indirect transfers include gifts of property for less than a full and adequate consideration in money or money’s worth. These include bargain sales or exchanges. The lifetime exemption amount for gift tax purposes remains at $1,000,000 through 2010. The IRS Tax Form 709 is used to record annual gifts above the annual exclusion amounts.

In 2006, the annual exclusion amount is $12,000 for a person to gift to each donee. Therefore, a Form 709 is not required for gifts totalling less than $12,000 per person, per year. Remember too, that a husband and wife may double this exclusion amount given to an individual ($24,000 per year). Beginning in 1999, the exclusion amount increased annually based on a cost-of-living adjustment. Any adjustment that is not a multiple of $1,000 is rounded to the next lower multiple of $1,000. In years 1977-1981 the exclusion amount was $3,000, in years 1982-2001 the exclusion amount was $10,000, in 2002-05 it was $11,000 and in 2006 raised to $12,000. Generally, gifts made to a souse is not included on a gift tax return, therefore there may be unlimited transfers between spouses. Other transfers not subject to gift taxes include: payment of tuition directly to a qualifying education organization (like The Ohio State University), payment of certain medical expenses paid directly to a medical provider, and transfers to political organizations for use by the organization. See your income tax professional for additional details.

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