The transfer property to another individual while receiving nothing, or less than full value, in return constitutes a gift and you are subject to gift tax. The tax applies whether the donor intends the transfer to be a gift or not.
The gift tax could apply to the transfer by gift of any property. Your make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift. It is important to speak to an estate planning attorney when considering a gifting as these decisions can affect Medicaid eligibility and exposure to federal and state taxes.
Annual Gift tax Exclusion
In 2012, individuals may give gifts annually to any person for any reason without tax implications or the requirement to file a gift tax return up to the annual exclusion amount of $13,000. For married couples, the annual exclusion is $26,000.
In 2013, the annual exclusion amount will increase to $14,000 ($28,000 for couples).
Lifetime Gift Tax Exclusion and Federal Estate Tax Exemption
For amounts given in excess of the annual exclusion amount, every individual has a lifetime gift tax exclusion amount, against which the excess gifts are credited. The lifetime gift tax exemption is the total amount that can be given away by an individual over their lifetime to any number of people free from taxes. However, the cumulative total of the amounts gifted in excess of the annual exclusion will reduce the amount that can be given away at death exempt from federal estate taxes.
Currently, in 2013, the lifetime gift tax exclusion and the federal estate tax exemption amount is $5.25 million per person and $10.6 million per couple at a top tax rate of 40%.
South Carolina currently has no gift tax.
If you or a family member is considering the establishment of a gifting strategy or gifting options, or have questions on the gift tax and estate tax law, we encourage you to contact the McQueen Law Firm to discuss gift planning, gifting options and estate planning requirements today at 864.585.5021 or online to schedule an appointment.
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