2009 Gift Tax Guidelines
The gift tax law allows a one time transfer from your estate of up to $1
million. Therefore, you can gift $1 million from your estate and your spouse can gift $1
million from her estate without being subject to a gift tax.
In addition to these rules, there is an annual gift tax exclusion of $13,000 that
each of you can transfer to others ($26,000 for a married couple). The
limitation applies only to gifting to one individual. You can make multiple
gifts to multiple individuals and will not pay gift tax as long as each gift
does not exceed the exclusion amount.
The following gifts are not taxable gifts:
- Gifts that are not more than the annual exclusion for the calendar year,
- Tuition or medical expense you pay directly to a medical or educational
institution for someone,
- Gifts to your spouse,
- Gifts to a political organization for its use, and
- Gifts to charities.
Annual exclusion. A separate annual exclusion applies to
each person to whom you make a gift. For 2009, the annual exclusion is $13,000.
Therefore, you generally can give up to $13,000 to any number of people in
2009 and none of the gifts will be taxable.
If you are married, both you and your spouse can separately give up to
$13,000 to the same person in 2009 without making a taxable gift. If one of you
gives more than $13,000 to a person in 2009, see Gift Splitting, later.
Inflation adjustment. After 2009, the $13,000
annual exclusion may be increased due to a cost-of-living adjustment. See the
instructions for Form 709 for the amount of the annual exclusion for the year
you make the gift.
Example 1. In 2009, you give your niece a
cash gift of $8,000. It is your only gift to her this year. The gift is not a
taxable gift because it is not more than the $13,000 annual exclusion.
Example 2. You pay the $15,000 college tuition
of your friend. Because the payment qualifies for the educational exclusion, the
gift is not a taxable gift.
Example 3. In 2009, you give $25,000 to your
25-year-old daughter. The first $13,000 of your gift is not subject
to the gift tax because of the annual exclusion. The remaining $12,000 is a taxable gift. As
explained later under Applying the Unified Credit to Gift Tax,
you may not have to pay the gift tax on the remaining $12,000. However, you do have to file a gift
tax return unless the gift was made from community property funds and is actually a gift
one half from the father and one half from the mother.
If you or your spouse make a separate property gift to a third party, the gift can be
considered as made one-half by you and one-half by your spouse. This is
known as gift splitting. Both of you must consent (agree) to split the
gift. If you do, you each can take the annual exclusion for your part
of the gift.
In 2009, gift splitting allows married couples to give up to
$26,000 to a person without making a taxable gift.
If you split a gift you made, you must file a gift tax return to show
that you and your spouse agree to use gift splitting. You must file a
Form 709 even if half of the split gift is less than the annual exclusion.
Gifts by married couples from community property funds are not taxable and no
reporting is required unless the gift exceeds $26,000.
Example. Harold and his wife, Helen, agree to split the gifts that
they made during 2009 from inherited funds. Harold gives his nephew, George,
$21,000, and Helen gives her niece, Gina, $18,000. Although
each gift is more than the annual exclusion ($13,000), by
gift splitting they can make these gifts without making a
Harold's gift to George is treated as one-half ($10,500)
from Harold and one-half ($10,500) from Helen. Helen's gift to Gina is also treated as
one-half ($9,000) from Helen and one-half ($9,000) from Harold. In each case, because one-half
of the split gift is not more than the annual exclusion, it is not a taxable gift. However,
each of them must file a gift tax return.
Applying the Unified Credit to Gift Tax
After you determine which of your gifts are taxable, you figure the amount of gift tax on the total
taxable gifts and apply your unified credit for the year.
Example. In 2009, you give your niece, Mary, a cash gift of $8,000. It
is your only gift to her this year. You pay the $15,000 college tuition of your friend,
David. You give your 25-year-old daughter, Lisa, $26,000. You also give your 27-year-old son,
Ken, $26,000. Before 2009, you had never given a taxable gift. You apply the exceptions to the
gift tax and the unified credit as follows:
- Apply the educational exclusion. Payment of tuition expenses is not subject
to the gift tax. Therefore, the gift to David is not a taxable gift and not reported
on Form 709.
- Apply the annual exclusion. The first $13,000 you give someone
during 2009 is not a taxable gift. Therefore, your $8,000 gift to
Mary, the first $13,000 of your gift to Lisa, and the first $13,000 of
your gift to Ken are not taxable gifts.
- Apply the unified credit. The gift tax on $26,000 ($13,000
remaining from your gift to Lisa plus $13,000 remaining from your gift
to Ken) is $5,120. You subtract the $5,120 from your unified credit of
$345,800 for 2009. The unified credit that you can use against the gift
tax in a later year is $340,680.
You do not have to pay any gift tax for 2009. However, you do have to file Form 709 for
the gifts to Ken and Lisa.
Filing a Gift Tax Return
Generally, you must file a gift tax return on Form 709 if any of the following apply.
- You gave gifts to at least one person (other than your spouse) that are more
than the annual exclusion for the year.
- You and your spouse are splitting a gift.
- You gave someone (other
than your spouse) a gift that he or she cannot actually possess, enjoy, or
receive income from until some time in the future.
- You gave your spouse an interest in property that will be ended by some future
You do not have to file a gift tax return to report gifts to (or for the use of) political
organizations and gifts made by paying someone's tuition or medical expenses.
You also do not need to report the following deductible gifts made to charities:
- Your entire interest in property, if no other interest has been
transferred for less than adequate consideration or for other than a charitable
- A qualified conservation contribution that is a restriction (granted
forever) on the use of real property.