If a homeowner gifts a property to another individual without being paid, the individual who transfers the property will be liable to pay a gift tax on the property for the transfer. The tax must be paid, despite the transfer of property as being considered a gift, by the individual who transferred the property. A gift is legally labeled as the same as providing a no interest rate loan or selling the property for below market value to an individual. Under this scenario, the person who has transferred the property is considered the donor, while the recipient of the gift is the donee. The gift tax must be claimed by April 15th of the next year.
Gift Tax Exemptions
Certain transfers of money will not be subject to gift taxes. As of 2017 the annual exemption permits an individual to transfer gifts of up to $14,000 per person without paying any tax fee. The lifetime exclusion currently stands at $5.49 Million in which case gift transfers will not count against you up to the exclusion limit. Exemption rates will generally go up as the years come along due to inflation. If over the exclusion amounts, the individual must then report the gifts to the IRS. Tuition fees as well as medical bills are exempt from a gift tax as long as the transfer of money is going straight to the medical facility or an educational institution such as a university.
Gift Tax Example
A mother gives her daughter a gift in the sum of $50,000 in order for her to buy a vehicle. Only $14,000 of that amount given will be free of any gift tax, while the remainder is taxable and will be counted against the mothers lifetime exemption.