The IRS requires that individuals providing others with gifts pay a tax, unless special arrangements are made so that the receiver bears financial responsibility for the remittance, according to the Internal Revenue Service. Exceptions exist where an individual provides a gift that does not exceed the annual exclusion for that tax year, for tuition or medical expenses paid on someone's behalf, for gifts to individuals' spouses, or for gifts to political associations.Continue Reading
The annual exclusion applies to the total value of all gifts given by one person to a particular individual, and is set at $14,000 from 2013 through to 2016, notes the IRS. This value increased from $13,000 in 2012, $12,000 in 2008 and $11,000 in 2005. Property held jointly by spouses gifted to another party remains subject to a limit twice these amounts. Individuals are also subject to an overall lifetime limit for tax-free gifts, set at $5.43 million for 2015, according to TurboTax.
The gift tax helps to stop taxpayers from avoiding estate taxes by gifting their property away prior to death, explains TurboTax. The IRS considers any transfer of property for proceeds less than fair market value to be a gift. However, when property switches hands, the IRS considers the new owner's tax base to be that of the giver.Learn more about Taxes