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Categories: General Tax Terms

Gift Tax refers to a federal tax applied to the transfer of property or assets from one individual to another without receiving something of equal value in return.

The tax is levied on the donor, or the person giving the gift, and is applicable when the value of the gift exceeds a certain annual exclusion limit set by the IRS, which is adjusted annually. As of 2023, this limit is $17,000 per recipient. Gifts exceeding this amount may require the donor to file a gift tax return (Form 709) and could reduce the donor’s lifetime estate and gift tax exemption.

For example, if an individual gives a gift of $20,000 to a friend in one year, they would need to file a gift tax return since the gift exceeds the annual exclusion limit. However, no tax would be owed unless the total gifts given over their lifetime exceed the lifetime exemption limit, which is currently $12.92 million.

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