Do you have to pay tax on gifted items?

The general rule of thumb is that any gift is a taxable gift. However, there are many exceptions to this rule. The following gifts are generally tax-free. In general, very few people pay gift tax, since even large five- and six-figure donations only count toward the lifetime exemption.

While you may have heard the term gift tax before, it almost always applies to the donor of the gift, not to the recipient of the donation. Giving gifts to family, friends or loved organizations or institutions is common at the end of the year. However, if you know that you are doing what could be counted as a large donation, such as extending an interest-free loan or giving money to someone now that they will later use it for college, but haven't spent it yet, be sure to find out if this will require you to at least file a gift tax return. There are certain limited situations where the recipient of a gift can agree to pay the tax, but this is something that should be fixed only after working with a tax professional.

You can see how most people, even if they need to follow up and report large donations, still won't be responsible for gift tax. Parent support payments for a child are not gifts if they are required as part of a legal obligation. It is the giver, not the recipient, who files a gift tax return (Form 70) and could pay gift tax. The gift tax was initially enacted in 1924, temporarily repealed in 1926, and re-enacted in 1932.After you donate money or goods that exceed this threshold, your gift tax rate will be between 18 and 40 percent, depending on how much your cumulative donations exceed it.

You can think of gift tax the same way you would think of income taxes, where each piece of money is taxed at the rate corresponding to the category it is in. The federal government imposes a gift tax of up to 40% on transfers of goods from one person to another, whether in cash or a physical item. Even when donations exceed exclusions, gift tax may not apply and only a gift tax form will be required when filing taxes. You must attach additional documents that support the valuation of the gift, such as financial statements in the case of a gift of shares in a limited ownership corporation or real estate appraisals.

Special arrangements can be made where the recipient of the donation can agree to pay the gift tax instead of the donor.

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