The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable. If you are lucky enough to receive a gift from a family member or friend, you may be wondering if the gift will be subject to income tax.
Generally speaking, no, you don't have to pay income tax on a donation you receive, and you don't usually have to report the donation to the IRS. 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 taxable. IRS Publication 525 contains the details.
In addition, some states have inheritance taxes. A special rule allows donors to distribute one-time gifts on five-year gift tax returns to preserve their lifetime gift exclusion. People won't have to file a gift tax return until they donate at least that amount to another person in a tax year. 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.
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). Any gift you transfer during your lifetime that counts toward your lifetime exemption also lowers the threshold at which your estate may be subject to estate tax. In addition to the annual gift tax exclusion, donors must be aware of the basic exclusion amount. Today we are going to spend some time talking about the gift tax exemption and the wealth tax exemption.
Upon receipt and verification (including comparing current taxpayer and taxpayer representative records with information on Form 4506-T filed), a copy of the original tax return will be mailed as requested. 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. In most cases, it is quite clear when a gift is given every time something of value is transferred from one person to another. The bad news is that you'll have to file a gift tax return, but the good news is that you probably won't pay a gift tax.
The federal government imposes a gift tax of up to 40% on transfers of property from one person to another, whether in cash or a physical item. Parental support payments for a minor are not gifts if required as part of a legal obligation. The IRS will provide a copy of a gift tax return when Form 4506, Request for Copy of Tax Return, is successfully completed and submitted with justification and payment. The IRS may also ask the gift recipient to pay gift tax if the donor doesn't pay the tax, but this rarely happens.