Beginning January 1, 2009, the federal gift tax annual exclusion increased from $12,000 to $13,000. The gift tax annual exclusion is the dollar amount of assets you can give to any individual each year without it being considered a taxable gift. Married couples can give up to $26,000 to any number of donees (recipients) without any gift-tax consequences. However, if either spouse contributes more than $13,000, the couple must “gift-split” to take advantage of the joint exclusion amount of (up to) $26,000. For gifts that exceed $13,000 for an individual or $26,000 for a married couple, a portion of the donor’s (giver’s) lifetime gift tax exclusion will be used. Currently, the lifetime gift tax exclusion is $1,000,000 per individual and will ultimately reduce the individual’s estate tax exclusion. As noted previously in this blog, there is a bill pending in Congress which would increase the lifetime gift tax exclusion to $3,500,000, thereby re-unifying the estate and gift tax exclusions at the same amount.
In cases where the gift tax annual exclusion is exceeded, and/or where a couple uses gift-splitting, a gift tax return (Form 709) must be filed. This return calculates the amount of any taxable gifts made during the year and reduces the taxpayer’s lifetime gift tax exclusion. The form is also used to elect gift-splitting. Each spouse electing to gift-split must make the election on their own gift tax return. Form 709 must be filed by April 15 th of the year following the year of the gift. Extensions of time (up to six months) can be granted by the IRS.
In addition to the gift tax annual exclusion, gifts for the payment of tuition and medical expenses are also excluded from taxation. In order to qualify for the exclusion, medical expenses must be paid directly to the institution providing the care and must be for expenses which would be deductible as an itemized deduction (i.e. not for cosmetic surgery etc.). In the same manner, tuition must be paid directly to the school. Tuition does not include room and board nor does it include books and fees.
Joseph W. Kenny is a director and shareholder of Hamblett & Kerrigan, P.A. and practices in the areas of estate planning and taxation. He is also a Certified Public Accountant with certification as a Personal Financial Specialist. You can reach Attorney Kenny by email at [email protected].