Gift Tax Rules

• Parents cannot deduct the value of their gifts they give to their children, even if they are taxed on the value of their gifts that exceed the annual exclusionary limits. The specific federal Internal Revenue Code regulations that apply to gifts depend on the year in which taxpayers made their gifts. The exclusionary rules apply to gifts made to each donee. After 2009, and current as of 2011, taxpayers can exclude up to $13,000 for gifts made to each donee. Between 2006 and 2008, the IRS allowed taxpayers to exclude up to $12,000 for gifts to each donee. Between 2002 and 2005, the exclusionary limit was $11,000.
  
  

Joint Gifts

• Parents can jointly give gifts to their children, and they are entitled to combine their exclusions annually. Parents who give joint gifts to their children can receive an aggregate exclusion of $26,000 annually, current as of 2009 through 2011. The IRS uses different tax rules for parents who give property to their children as gifts than for parents who give their children gifts. For parents who give their children property, they can exclude the fair market value of their property; parents that give their children cash gifts can exclude the total cash value of their gifts. The fair market value of real or personal property given as gifts is the value that a willing buyer and seller would pay during a voluntary auction or private sale.
  
  

Exceptions

• The IRS defines a gift as a transfer of money or property without a full consideration or exchange of money or property in return. In addition to allowing taxpayers to give gifts without triggering income taxes if they are below the annual calendar exclusion, the IRS does not tax gifts to spouses, gifts to political organizations or medical or tuition assistance payments, regardless of their value.
  
  

Considerations

• Since tax laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.