Gift Tax

Gift Tax

by Richard C. Wilson & Family Offices Group Association Team

Family Office Definition: Gift Tax

Gift Tax definition:  A gift tax is applied to the giver rather than the receiver. The receiver does not pay income tax on the gift transfer, but is liable for future income produced by the gifted property (or distributed from a trust). When an item is sold for any amount less than fair value, it is considered a gift.  Interest-free loans or loans with interest less than the applicable federal rate are considered gifts.  The use of property or right to receive income from property is considered a gift when any amount less than fair value is accepted, even if ownership of property is not transferred. Gifts made to spouses, political organizations, or charities are not subject to gift taxes regardless of value. Medical and educational expenses paid directly to an institution are not subject to gift taxes. Tax-free gifts may be made to any number of people for less than the annual IRS exclusion amount. Spouses are permitted to split a gift and each take the annual exclusion amount per person, doubling the amount given tax-free. Gifts made during a lifetime do not receive a step-up in basis; the recipient receives the same basis as the giver, referred to as carry-over basis.

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