The federal gift tax applies to all gifts that you make during the course of your lifetime. Whether a gift will be taxable for gift tax purposes depends on three things: (1) Who the recipient of the gift is, (2) The fair market value of the gifted property, and (3) Whether the gift is of a present or a future interest.
Gifts to Citizen Spouses vs. Noncitizen Spouses
All gifts made to your spouse who is a U.S. citizen are exempt from federal gift taxes due to the unlimited marital deduction. On the other hand, gifts made to a spouse who isn't a U.S. citizen are only exempt up to the first $139,000 of gifted property in 2012, $143,000 in 2013, and $145,000 in 2014.
Gifts to Nonspouses
Currently federal law also exempts the first $14,000 of gifts made during the course of the year to anyone other than a spouse from the federal gift tax (this amount is indexed for inflation but can only increase by $1,000 increments). This dollar amount is referred to as the annual exclusion from gift tax.
Gifts of Present vs. Gifts of Future Interests
Another thing that must be considered is whether the gift is one of a present interest or a future interest. A gift of a present interest is one that is given over entirely for the complete use, enjoyment and benefit of the person receiving the gift, free from any strings attached. On the other hand, a gift of a future interest has strings attached, meaning that the person receiving the gift won't have complete use and enjoyment of the gift until some future point in time.
A gift of a future interest doesn't qualify for the unlimited marital deduction, the $14,000 annual exclusion from gift taxes for gifts made to nonspouses, or the $143,000 annual exclusion from gifts taxes for gifts made to a noncitizen spouse in 2013 (or $145,000 in 2014). A common example of a gift of a future interest is reserving a life estate for yourself in a piece of real estate and then when you die your spouse or your child will become the full and vested owner of the property.
If you've made a gift of a future interest to anyone, including your spouse, then the entire gift is taxable for gift tax purposes and must be reported to the IRS on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
Some Gift Tax Examples
Once the total value of gifts made to a nonspouse family member or to a friend reaches $14,000, or $143,000 for gifts made to a noncitizen spouse (increasing to $145,000 in 2014), in any given year, any additional gifts made in the same year to the same person will become taxable for federal gift tax purposes.
For example, if a father makes a one time gift of $114,000 to his son for the purchase of a home, then $14,000 of the gift is free and clear of the federal gift tax and the remaining $100,000 is a taxable gift. Or, if the father gifts his son $10,000 in January and then an additional $100,000 in June of the same year, then the first $14,000 is free and clear of the federal gift tax and $96,000 is a taxable gift.