When it comes to gift taxes, these are some of the most commonly asked questions:
(1) Who pays the gift tax? The person receiving a gift won't have to pay a gift tax. Only the giver will -- or might.
(2) Calif. or IRS? There is no gift tax at the state level in California. Only at the federal level.
(3) What can be gifted? Any type of property can be gifted, whether it's cash or non-cash.
(4) What is a "gift"? Something is a gift when the value of the thing given is more than the value of the thing received in exchange for it. For example, giving your 18-year-old child a used car on his birthday is a gift because you received nothing in return. But giving your child $1,000 to paint your house and do all your landscaping is probably not a gift because your received about the same value in labor in return. That $1,000 would be income to your child.
(5) Are there exclusions to the gift tax?
(i) $14,000 is the magic number. For 2017, the annual gift-tax exclusion amount is $14,000. This means that a person can give another person a total of $14,000 (in one or more separate gifts) without having to file a gift tax return.
(ii) Gifts to a spouse. Every gift to one's own spouse will always be gift-tax free.
(iii) Tuition or medical expenses. A person can pay any amount of tuition or medical expenses for someone else (and not just one's own children) without paying a gift tax. But these gifts should be paid directly to the school or hospital, not to the receiver of the gift.
(iv) Gifts to a political organization
(6) What happens when giving to multiple people? The $14,000 figure mentioned above applies separately to each person receiving gifts. For example, you can give a total of $14,000 in gifts to two different people in 2017, for a total of $28,000 gifted away. None of those gifts would be taxable.
(7) Are gifts income-tax deductible? No. The gift giver can't deduct the value of a gift from her income tax return (unless there's an independent justification for doing so, such as charitable contributions).
(8) What happens when spouses give away jointly owned property? When spouses give away property that they own together, both spouses can use their $14,000 yearly exclusion amount. For example, a married couple can gift away $28,000 in jointly owned cash to one person in 2017 without either of them having to pay gift taxes.