A donation is not considered income for federal tax purposes. People who receive gifts of money, or anything else of value, do not need to report gifts on their tax returns. Gift-givers may have to report any gifts to a single person who, when combined, exceed the annual exclusion. The general rule is that any gift is a taxable gift.
However, there are many exceptions to this rule. Usually, the following gifts are not taxable. The assets you receive as a gift or inheritance are not usually taxable income at the federal level. However, if the assets later produce income (they may earn interest or dividends, or you collect rent), that income is likely to be taxable.
IRS Publication 525 contains the details. In addition, some states have inheritance taxes. As a gift recipient, you're usually free. The person making the donation will file the gift tax return, if necessary, and will pay any taxes due.
The IRS will provide an account transcript for gift tax returns when Form 4506-T, Request for Tax Return Transcript, is successfully completed and submitted with justification. Although beneficiaries do not face immediate tax consequences, they may face capital gains tax if they sell gifted properties in the future. If you're lucky and generous enough to use your exclusions, you may have to pay gift tax. So if you don't give anything away during your lifetime, then you have all your lifetime exclusion to use against your estate when you die.
Tax return on gifts (and generational transfers), due on April 15 of the following year or the next business day if it falls on a weekend or holiday. For the simplest and smallest transfers (less than the annual exclusion amount), you may not need the services of a professional. If you want to calculate taxable income from donations that exceed the annual exclusion limit, the following table breaks down the rate you will have to pay based on the value of the gift. Complete IRS Form 709, U.S.
Gift Tax Return (and Generation Jump Transfer), on or before the tax filing deadline. Please note that any additional gifts to that person over the next five years will put them above the annual donation limit, so their lifetime exclusion will be reduced by those additional donation amounts. This could apply to parents who give money to their children, to the gift of property such as a house or car, or any other transfer. However, you must inform the IRS that those donations exceeded the annual limit by filing a gift tax return.
If you're paying tuition or medical bills, paying directly to the school or hospital can help you avoid the gift tax reporting requirement (see IRS Form 709 instructions for more information). In addition to these gifts that are not taxable, there are some transactions that are not considered gifts and therefore are definitely not taxable gifts. Assuming you haven't used your entire lifetime exemption yet, you won't have to pay any gift tax to grandchildren. Even if your donations exhaust your entire lifetime exemption, your loved ones could get ahead, they would receive their tax-free gifts today, and they could tap into their growth potential.
You must attach supporting documents that support the valuation of the gift, such as financial statements in the case of a donation of shares in a closed-end corporation or real estate appraisals. .
