Gift Tax Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Gift Tax, written in plain English, along with examples of how it is used.
What is Gift Tax?
(n) Gift tax is the charge, duty levied by the Government on transaction involving voluntary transfer of money or article of money value without any consideration payable to the transferor. Gift taxes legislations generally contain limit above which taxes will be applicable
History and Meaning of Gift Tax
The Gift Tax is a tax on the transfer of property (money, stocks, real estate, etc.) from one person to another without receiving anything in return. This tax was introduced in the United States in 1924 with the intention of preventing wealthy families from avoiding the Estate Tax by giving away their assets as gifts during their lifetime. The idea was to tax those gifts to prevent people from simply giving away everything they owned and avoiding taxes upon their death. The current federal gift tax rate is 40% on gifts exceeding a certain amount, which is currently over $11 million per individual.
Examples of Gift Tax
- If a wealthy grandfather gives his granddaughter $1 million in cash, the government will expect him to pay a gift tax on that amount.
- If a couple jointly owns a property and one spouse transfers the property solely to the other spouse, they will not be subject to the gift tax because it is considered a marital deduction.
- If a father gifts his son a car worth more than $15,000, he will have to pay the gift tax based on the fair market value of the car at the time of the gift.
Legal Terms Similar to Gift Tax
- Estate Tax - A tax on the transfer of assets after a person's death.
- Generation-Skipping Transfer Tax - A tax on the transfer of assets to someone who is two or more generations younger than the person making the transfer, such as a grandchild or great-grandchild.
- Annual Exclusion - A gift tax exemption that allows individuals to gift up to a certain amount each year (currently $15,000) to another person without incurring gift tax.