Page 3 of 5 of Publication 950 10:03 - 21-NOV-2011
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Example 1. You give your niece a cash gift
Applying the Unified Credit
of $8,000. It is your only gift to her this year. The
Gift Tax
to Gift Tax
gift is not a taxable gift because it is not more
than the $13,000 annual exclusion.
After you determine which of your gifts are tax-
The gift tax applies to transfers by gift of prop-
able, you figure the amount of gift tax on the total
erty. You make a gift if you give property (includ-
Example 2. You pay the $15,000 college
taxable gifts and apply your unified credit for the
ing money), the use of property, or the right to
tuition of your friend directly to his college. Be-
year.
receive income from property without expecting
cause the payment qualifies for the educational
to receive something of at least equal value in
Example. In 2011, you give your niece,
exclusion, the gift is not a taxable gift.
return. If you sell something for less than its full
Mary, a cash gift of $8,000. It is your only gift to
Example 3. You give $25,000 to your
value or if you make an interest-free or re-
her this year. You pay the $15,000 college tui-
duced-interest loan, you may be making a gift.
25-year-old daughter. The first $13,000 of your
tion of your friend, David. You give your
gift is not subject to the gift tax because of the
The general rule is that any gift is a taxable
25-year-old daughter, Lisa, $25,000. You also
annual exclusion. The remaining $12,000 is a
gift. However, there are many exceptions to this
give your 27-year-old son, Ken, $25,000. You
taxable gift. As explained later under Applying
rule.
have never given a taxable gift before. You ap-
the Unified Credit to Gift Tax, you may not have
ply the exceptions to the gift tax and the unified
Generally, the following gifts are not taxable
credit as follows:
to pay the gift tax on the remaining $12,000.
gifts:
However, you do have to file a gift tax return.
• Gifts, excluding gifts of future interests,
1. Apply the educational exclusion. Payment
that are not more than the annual exclu-
of tuition expenses is not subject to the gift
More information. See Form 709 and its in-
sion for the calendar year,
tax. Therefore, the gift to David is not a
structions for more information about taxable
taxable gift.
• Tuition or medical expenses paid directly
gifts.
to an educational or medical institution for
2. Apply the annual exclusion. The first
someone else,
$13,000 you give someone is not a taxable
Gift Splitting
gift. Therefore, your $8,000 gift to Mary,
• Gifts to your spouse,
the first $13,000 of your gift to Lisa, and
If you or your spouse makes a gift to a third
• Gifts to a political organization for its use,
the first $13,000 of your gift to Ken are not
party, the gift can be considered as made
and
taxable gifts.
one-half by you and one-half by your spouse.
• Gifts to charities.
3. Apply the unified credit. The gift tax on
This is known as gift splitting. Both of you must
$24,000 ($12,000 remaining from your gift
agree to split the gift. If you do, you each can
to Lisa plus $12,000 remaining from your
Annual exclusion. A separate annual exclu-
take the annual exclusion for your part of the gift.
gift to Ken) is $4,680. Subtract the $4,680
sion applies to each person to whom you make a
Currently, gift splitting allows married
from your unified credit of $1,730,800 for
gift. The gift tax annual exclusion is subject to
couples to give up to $26,000 to a person with-
2011. The unified credit that you can use
cost-of-living increases.
out making a taxable gift.
against the gift or estate tax in a later year
is $1,726,120.
Gift Tax Annual Exclusion
If you split a gift you made, you must file a gift
Year(s) Annual
tax return to show that you and your spouse
You do not have to pay any gift tax for 2011.
Exclusion
agree to use gift splitting. You must file a Form
However, you do have to file Form 709.
1998 – 2001 ......... $10,000
709 even if half of the split gift is less than the
For more information, see the Table for
2002 – 2005 ......... $11,000
annual exclusion.
Computing Gift Tax in the Instructions for Form
2006 – 2008 ......... $12,000
709.
Example. Harold and his wife, Helen, agree
2009 – 2012 ......... $13,000
to split the gifts that they made during 2011.
Filing a Gift Tax Return
Harold gives his nephew, George, $21,000, and
Currently, you generally can give gifts valued up
Helen gives her niece, Gina, $18,000. Although
to $13,000 per person, to any number of people,
Generally, you must file a gift tax return if any of
each gift is more than the annual exclusion
and none of the gifts will be taxable.
the following apply:
($13,000), by gift splitting they can make these
However, gifts of future interests cannot be
• You gave gifts to at least one person
gifts without making a taxable gift.
excluded under the annual exclusion. A gift of a
(other than your spouse) that are more
Harold’s gift to George is treated as one-half
future interest is a gift that is limited so that its
than the annual exclusion for the year.
($10,500) from Harold and one-half ($10,500)
use, possession, or enjoyment will begin at
• You and your spouse are splitting a gift.
from Helen. Helen’s gift to Gina is also treated
some point in the future.
as one-half ($9,000) from Helen and one-half
If you are married, both you and your spouse • You gave someone (other than your
($9,000) from Harold. In each case, because
can separately give gifts valued up to $13,000 to spouse) a gift of a future interest that he or
one-half of the split gift is not more than the
the same person without making a taxable gift. If she cannot actually possess, enjoy, or re-
annual exclusion, it is not a taxable gift. How-
one of you gives more than the $13,000 exclu- ceive income from until some time in the
sion, see Gift Splitting, later. ever, each of them must file a gift tax return. future.
Publication 950 (October 2011) Page 3