How is the gift tax imposed?
A federal tax is imposed upon all gifts from an individual to others during his/her lifetime. This tax is incurred whenever a gift is made.
There are many exceptions to the imposition of the federal gift tax, such as:
(1) every individual is allowed to make a gift of a present interest of up to $11,000 per donee per year free from gift tax (a husband and wife each has an annual exemption so a married couple can gift up to $22,000 per donee per year without incurring any tax),
(2) transfers to qualified political organizations are not subject to gift tax (although there are many laws which limit the amount that a person can contribute to a political organization),
(3) gifts to pay tuition to a qualified educational organization or to persons who qualify as a provider of medical care made on behalf of another individual are excluded,
(4) loans of qualified artwork are not treated as a transfer subject to gift tax under certain circumstances, and
an unlimited gift tax marital deduction when property is transferred to a surviving United States citizen spouse of the donor (so long as certain prerequisites are met), and
(5) a unified credit which enables every individual to dispose of up to $1.5 million of property by gift during lifetime and distribution after death (this exclusion increases to $2 million in 2006 and to $3.5 million in 2009).
These exceptions enable most people to make gifts without incurring any federal gift tax.
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