Gift Tax

Definition: A tax assessed on the value of property that is gifted from one person to another. The person who makes the gift is the one responsible for paying the gift tax and reporting the gift to the IRS on Form 709, while the person who receives the gift won't need to report the gift as part of their income.

In 2009 as well as 2010 federal law exempts the first $13,000 of gifted property from the federal gift tax, which increased from $12,000 in 2008. This dollar amount is referred to as the "annual exclusion from gift tax."

Gifts to spouses who are U.S. citizen are exempt from gift taxes due to the unlimited marital deduction. In 2009 and 2010 gifts to spouses who aren't U.S. citizens are exempt up to the first $133,000, which is an increase from $128,000 in 2008.

The current federal lifetime gifting exemption is $1,000,000 and although the federal estate tax is scheduled to disappear in 2010, the gift tax will remain with a $1,000,000 lifetime exemption for 2010. Two states also assess gift taxes, Connecticut and Tennessee. Louisiana's gift tax was abolished on July 1, 2008, and North Carolina's gift tax was abolished on January 1, 2009.

Chart Showing Annual Exclusion From Gift Taxes: 1997 - 2010