Gift Tax

Definition: A gift tax is 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, United States Gift (and Generation-Skipping Transfer) Tax Return, 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 gifts made to spouses who are not U.S. citizens were exempt up to the first $133,000 and this amount has increased to $134,000 in 2010, which is an increase from the $128,000 exemption in 2008.

Although the federal estate tax has been repealed for 2010, the 2010 federal lifetime gifting exemption remains at $1,000,000 and the maximum gift tax rate for 2010 is 35%, down from 45% in 2009. 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