What are the rules for the annual gift tax exemption?


Quick Answer

The rule for the annual gift tax is that when money or property is exchanged without any expectation of receiving something of equal value in return, a gift tax may be imposed, says the Internal Revenue Service. Gift tax generally applies to no- or low-interest loans, or the use of property free of charge.

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Full Answer

The gift donor is responsible for paying the gift tax, notes the IRS. There can be special arrangements for the donee to pay the tax, and each party should discuss the implications with a tax professional before determining who pays the tax.

In general, any gift is subject to gift tax, with some exceptions, states the IRS. This includes gifts that have values under the calendar-year exclusion, medical and tuition expenses paid by someone on behalf of another person, gifts to a political organization and gifts to a spouse. The annual exclusion is $14,000 per donee, as of 2015. Married couples providing gifts have an exclusion of $28,000 per donee couple. With the exception of donations to a charity, gifts are not tax-deductible. When property is the gift, the value is determined by the amount below the fair market value. If someone gifts money or leaves an estate to a beneficiary, he is still required to pay gift taxes.

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