Tips from a Lending Expert – What you need to know about the Gift Tax

If you are baffled by the gift tax you are not alone. The gift tax is often confusing because there are two types of exclusions: the annual exclusion and the lifetime exclusion. Each year a person can give any number of people a certain amount of money without gift tax consequences. This amount, called the annual exclusion, is $14,000 for 2013. For example, an individual could give up to $28,000 in 2013 to a married couple with no gift tax consequences.

In the event that an individual gifts someone more than the annual exclusion amount they must file a gift tax return but that doesn’t mean they will owe gift tax. There is also a lifetime exclusion. Currently, an individual will not pay gift tax until they have given away over $5.25 million in their lifetime.

The gift tax is assessed on the value of property that is gifted from one person to someone other than their spouse. Oddly enough, the person who makes the gift is the one who is responsible for paying any gift tax that may be due and reporting the gift to the IRS on a gift tax return. The gift tax can be triggered by simply adding someone to your bank account, investment account or deed of trust on your real estate, regardless of whether any property was actually transferred. Fortunately, tuition or medical expenses paid directly to an education or medical institution are exempt from the gift tax.

The annual exclusion amount changes every year and the lifetime exclusion is likely to change soon. So before giving a gift, be sure you know the current exclusion amounts! Estate planning with your accountant can be a powerful tool in navigating the gift tax and limiting your exposure.

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