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The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced interest loan, you may be making a gift.
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 gifts.
- Gifts that are not more than the annual exclusion for the calendar year.
- Tuition or medical expenses you pay for someone (the educational and medical exclusions).
- Gifts to your spouse.
- Gifts to a political organization for its use.
- Gifts to qualified charities (a deduction is available for these amounts).
Annual Exclusion
A separate annual exclusion applies to each person to whom you make a gift. For 2002, 2003 and 2004, the annual exclusion is $11,000. Therefore, you generally can give up to $11,000 each to any number of people in 2002, 2003 and 2004 and none of the gifts will be taxable.
If you are married, both you and your spouse can separately give up to $11,000 to the same person in 2002, 2003 or 2004 without making a taxable gift. If one of you gives more than $11,000 to a person in 2002, 2003, or 2004, refer to gift splitting in Publication 950, Introduction to Estate and Gift Taxes.
Gifts to individuals are not deductible on the donor's income tax returns.
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