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Gift Tax Mythbusting
The federal gift tax applies to any “transfer of property by one individual to another while receiving nothing, or less than full value, in return” valued at more than $18,000. A tax of 18-40% applies to each dollar of value over $18,000, and each such gift must be reported annually to the IRS via a gift tax return. However, that is not the end of the story. Below are the most pervasive myths about the gift tax, along with the truth that busts each myth.
Myth #1: Federal law prohibits gifts over $18,000.
The Truth: False! Federal law simply taxes gifts over $18,000.
Myth #2: Individuals receiving the gift must pay the gift tax.
The Truth: False! Under federal law, the person making the gift is subject to the gift tax.
Myth #3: Gift tax is immediately due for all transfers over $18,000.
The Truth: False! Individuals are entitled to transfer $13.61 million to others either during their lifetime or at death without taxation. While a gift tax return is due for each tax year in which a transfer over $18,000 is made, the taxes owed can be applied against the $13.61 million. This prevents having to pay gift tax immediately.
Myth #4: Transfers from one spouse to another spouse are subject to gift tax.
The Truth: False! Gifts from one spouse to another are not subject to gift tax.
Myth #5: In addition to the federal gift tax, New York State imposes a gift tax.
The Truth: False! New York State does not impose a gift tax.
Book your free consultation today to learn how to avoid gift tax.
