General Rule-Gift Tax, Exclusions

The gift tax applies to transfers by gift of property (including money) without expecting to receive something of at least equal value in return. 

All transfers of money or property in trust is a taxable gift unless the trust is treated as wholly owned by the donor or the donor's spouse.The general rule is that any gift is a taxable gift. 
The following gifts are not taxable gifts:

  • Gifts, excluding gifts of future interests, that are not more than the annual exclusion for the calendar year,
  • Tuition or medical expenses you pay directly to a medical or educational institution for someone,
  • Gifts to your spouse [if a U.S.citizen],
  • Gifts to a political organization for its use, and
  • Gifts to charities
Annual Exclusion

For 201 on, you generally can give a gift valued at up to $13,000 each, to any number of people, and none of the gifts will be taxable.

A separate annual exclusion applies to each person to whom you make a gift. The gift tax annual exclusion is subject to cost-of-living increases.
Future Interest
Gifts of future interests are not annual exclusions. A gift of a future interest is a gift that is limited so that its use, possession, or enjoyment will begin at some point in the future.

Gifts to Non-Citizen Spouse

Gift tax exclusion not available for non- US citizen spouses.
Maximum that a spouse can give to a non-citizen spouse is adjusted annually.
Gift Splitting

If you or your spouse makes a gift to a third party, the gift can be considered as made one-half by you and one-half by your spouse. This is known as gift splitting. Both of you must consent (agree) to split the gift. If you do, you each can take the annual exclusion for your part of the gift.

If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709 even if half of the split gift is less than the annual exclusion.

Applying the Unified Credit to Gift Tax

After you determine which of your gifts are taxable, you figure the amount of gift tax on the total taxable gifts and apply your unified credit for the year.

Apply the exceptions to the gift tax and the unified credit as follows:

Apply the educational exclusion. Payment of tuition expenses or a third person's medical expenses are not subject to the gift tax. 

Apply the annual exclusion. The first $13,000 you give someone in 2011 is not a taxable gift. 

Apply the $1 million lift-time gift exemption.

Filing a Gift Tax Return

Generally, you must file a gift tax return on Form 709 if any of the following apply.

You gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the year.

You and your spouse are splitting a gift.

You gave someone (other than your spouse) a gift of a future interest that he or she cannot actually possess, enjoy, or receive income from until some time in the future.

You gave your spouse an interest in property that will be ended by some future event.

You do not have to file a gift tax return to report gifts to (or for the use of) political organizations and gifts made by paying someone's tuition or medical expenses.

You also do not need to report the following deductible gifts made to charities.