There are taxes for almost anything these days and that includes gifts. But before you worry about getting taxed on gifts you receive for Christmas, not all gifts are taxed. For anyone who is concerned about this, here’s the way it works
The federal gift tax doesn’t apply to all gifts you make during your lifetime. You’re free to give away money or property in relatively small increments as long as those increments don’t add up to a mountain of generosity. You can even give certain gifts of more significant value because they’re exceptions to the usual rules.
It’s good to know that all gifts aren’t taxable, but under what conditions does a gift become taxable? Basically, whether a gift is taxable comes down to three basic considerations. Who is the recipient of the gift, what’s the gifts fair market value, and whether it was a present interest gift or a future interest gift.
For the purposes of gifts, all gifts made to your spouse are exempt from federal gift taxes as long as your spouse is a U.S. citizen. As of 2018, you can give up to $152,000 a year to your spouse if she is not a U.S. citizen. This exemption increases annually.
For gifting purposes, fair market value comes into play under certain conditions. As an example, if sell someone a $300,000 home for $150,000, you’re considered to have given a gift of $150,000 because you didn’t receive anything in exchange for this portion of the property’s value.
So, what’s the difference between a present interest gift or a future interest gift? A gift of present interest is one that the recipient is free to use for her own enjoyment and benefit immediately—no strings attached. A future interest gift on the other hand is one in which the recipient doesn’t have complete use and enjoyment of the gift until some future point in time. Common examples of a future interest gift are reserving a life estate in real estate and funding a trust.
Fortunately, most of these examples don’t apply to most Christmas gifts, so don’t worry about that. If you still have questions regarding gift taxes, contact a tax professional.