When I joined my current law firm a little over 5 years ago, I was really surprised to learn that Tennessee imposes a gift tax on residents and nonresidents who own real estate and tangible personal property located in Tennessee (while I live and practice in Florida, my firm also has an office in Johnson City, TN). Currently Connecticut is the only other state that keeps track of lifetime gifts but only to the extent they exceed $2,000,000. Here are the rules that apply to gifts made by Tennessee residents and gifts of Tennessee real estate or tangible personal property located in Tennessee made by nonresidents:
- Allowable exemption per donee, 2009 - Class A = $13,000, Class B = $3,000 (for prior years, refer to the chart provided by the Tennessee Department of Revenue found here).
- Exception - In the case of a gift of a future interest, the exemption is $10,000 for both classes.
- Class A beneficiaries include spouses, children, other lineal ancestors and lineal descendants, siblings, sons-in-law, daughters-in-law, and stepchildren. If a person has no children or grandchildren, then a niece or nephew of such person shall be a Class A donee.
- Class B beneficiaries include all other donees.
- A marital deduction is allowed for gifts made to a spouse provided that the donor and recipient were married to each other at the time the gifts were made.
- A charitable deduction is allowed for gifts made to a charitable, educational, scientific, or religious organization if it is qualified as a charitable entity under section 501(c)(3) of the Internal Revenue Code.
- The due date of the state gift tax return, Form INH 300, is annually on April 15 of the year after the gift is made.
- An extension of time to file Form INH 300 for up to six months may be requested by filing Form INH 303, Application for Extension of Time to File Gift Tax Return, on or before the April 15th due date. No penalty will attach if Form INH 300 is then filed within the six month extension period, but interest will accrue from the original due date to any taxes remaining due when the return is filed.
- The tax rate is a progressive rate that ranges from 5.5% to 16%.
This information is courtesy of the Tennessee Department of Revenue.
The bottom line - if you're a Tennessee resident and you make gifts in excess of $13,000 to your immediate family members or in excess of $3,000 to remote family or nonfamily members, or if you're a nonresident who owns real estate and/or tangible personal property located in Tennessee and you make any such gifts, then you'll need to file a Tennessee State Inheritance Tax Return, Form INH 300, and pay any gift tax that may be due. Up next, Tennessee estate taxes.