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Gift Tax

A gift tax is a tax on the transfer of property by a living individual, without payment or a valuable exchange in return. The donor, not the recipient of the gift, is typically liable for the tax.

What Is Considered a Gift?

Anything that is considered valuable, above a threshold set by the Internal Revenue Service (IRS), can be taxed under a gift tax. Examples include large monetary donations or property like real estate. Once the gift reaches the threshold, the donor will be taxed at a rate ranging from 18 to 40 percent. Taxes are only owed once the donor has exceeded a lifetime exemption (currently $12.06 million), and then only on gifts that (in total to a given recipient) exceed the annual per-beneficiary exclusion, currently set at $16,000. Only amounts above this annual exclusion count toward the lifetime exclusion and are taxed if the lifetime exemption has been exhausted.

Some gifts are excluded by type, like medical and tuition payments, donations to charity, or certain donations to political organizations. A certain type of trust, called a Crummey trust, also avoids the gift tax.

What Is the Difference Among Gift Taxes, Inheritance Taxes, and Estate Taxes?

The main difference between a gift tax and inheritance and estate taxes is that the tax applies to a transfer of money or property from a living donor.

An estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. An inheritance tax is levied upon the amounts each heir receives from the decedent, rather than on the estate as a whole.

While the federal government levies gift and estate taxes, it does not currently levy an inheritance tax. In addition to the federal gift tax, Connecticut is the only state to levy its own state-level gift tax. Most states have moved away from inheritance, estate, and gift taxes.

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