Do You Owe a Gift Tax?
It’s that time of year again – the traditional season for graduations and weddings has begun! Did you send a generous check to your favorite nephew in honor of his college graduation? Did you give your daughter and new son- in-law money toward a down payment on a home as a wedding gift? Don’t make the mistake of overlooking your other (often forgotten) relative Uncle Sam.
If you give a non-spouse a gift valued in excess of the annual exclusion amount, you will be subject to a gift tax. Currently, the annual gift tax exclusion amount is $14,000 per person, per year. If you are married, you and your spouse may give up to $28,000, per person, per year, free from federal gift tax.
Although there are usually no immediate tax concerns for the gift recipient, the recipient could be liable for capital gains tax in the future. Highly appreciated gifts such as real estate or stocks will render the recipient liable for capital gains tax when he or she decides to sell the gift at a later date.
The general rule is that the recipient’s basis in gifted property is the same as the basis of the donor. For example, if you were given stock the donor had purchased for $10 per share (which was also his/her basis) and you later sold it for $100 per share, you would pay tax on a gain of $90 per share.