The Internal Revenue Service (IRS) recently issued Revenue Procedure 2012-41 which set forth inflation-adjusted revenue items for 2013. Among other things, the IRS announced that the annual gift tax exclusion amount will increase in 2013 to $14,000 made by a taxpayer to any person who is not the taxpayer’s spouse. Married couples can combine their annual exclusion amounts and gift $28,000 in 2013 to any person, per year, without incurring any gift tax liability. Gifts to a spouse who is a U.S. citizen remain exempt from gift taxes due to the unlimited marital deduction. The annual gift tax exclusion amount for gifts made to a spouse who is not a U.S. citizen will increase to $143,000, up from $139,000 in 2012. This is the first increase in the annual gift tax exclusion amount since 2009.
An annual exclusion gift is simply a gift that qualifies for the annual exclusion from federal gift taxes. The annual exclusion amount is the amount that can be given away by a taxpayer in any year to any person free from federal gift taxes. The amount of the annual exclusion is set each year by the IRS. The State of New Jersey does not impose any taxes on gifts made during a taxpayer’s life, except for gifts which are made close to, or in contemplation of, death.
Annual gifts made in 2013 to any person that exceed $14,000, or $143,000 for gifts made to a non-citizen spouse, are considered taxable gifts and must be reported to the IRS on Form 709, which is the United States Gift Tax Return. However, even if the gifts exceed the annual gift tax exclusion amount, the person making the gift usually will not have to pay any gift taxes. No gift taxes are usually due because every taxpayer is given a lifetime gift tax exemption that can be used to offset their taxable gifts. In 2012, the lifetime gift tax exemption is $5,120,000. In 2013, the lifetime gift tax exemption will be reduced to $1,000,000, unless Congress acts to change the law and increase the exemption.
In addition, gifts for tuition and medical expenses as defined by IRS regulations have no limitations and can be gifted each year in any amount free from federal gift taxes.