- The Internal Revenue Service taxes the transfer of property while you are alive. This tax is known as the gift tax. You may annually transfer up to $13,000 of assets to a person without filing a gift tax return. Any gifts over $13,000 must be reported to the IRS and will be considered taxable gifts. Over your lifetime, you can make $5 million worth of taxable gifts without owing taxes. All taxable gifts over the $5 million lifetime limit will be charged the gift tax.
- If your property transfer exceeds the $13,000 annual limit and you have exceeded the lifetime $5 million gift tax exemption, your property transfer will be charged gift taxes. The current gift tax rate is 35 percent, as of 2011, charged to the donor of the gift. It is the donor's responsibility to file a gift tax return on IRS Form 709, as well as pay all gift taxes to the government.
- When you transfer a property to another taxpayer, they keep the same tax basis in the property. The basis of the property is your initial investment to buy the property plus the cost of any improvements made to the property. When the new owner sells the property, the basis will be returned tax-free. Any sale proceeds over the basis will be taxed as a capital gain, but the basis of the property will be returned tax-free to the new owner.
- Not all property transfers are charged the gift tax. There is an unlimited marital deduction for gift taxes. You will never owe gift taxes on property transfers to your spouse. There is also an unlimited charitable gift tax deduction. If you donate a property to a qualified charity, the transfer will not be charged gift taxes. These tax-free transfers do not count toward your lifetime $5 million exemption, so it can be applied against other gifts.
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