$12,000 Gift Exclusion
Married couples may give up to $24,000 per person per year, to an unlimited number of persons under the $12,000 annual exclusion. The annual exclusion is indexed for inflation after 2002 and will be increased in increments of $1,000 as the costs of living increase
The gift may be cash, a check, stocks, bonds, real property, a partial interest in real property or virtually anything. The general rule for the date of gift for a check is the date the check is cleared.
The gift must be irrevocable and must be a present immediate interest in order to qualify for the $12,000 annual exclusion. There can be "no strings" attached to the gift.
The donor is not entitled to an income tax deduction for making a gift. And the gift received by the donee is not included as taxable income of the donee.
Transfers by gift DO NOT get a “step up” in basis. In other words, the donee’s basis is the same as the donor’s basis was just before the gift. Therefore, a gift of appreciated property, such as a house that was owned by the donor for a number of years, will result in capital gains tax when the donee sells the property.
When the property is transferred because of death, whether by joint tenancy, a living trust, or probate, the heir or beneficiary gets a new basis equal to the fair market value at the time of death. The example to the left illustrates the difference in the capital gains due as a result of a gift compared to the capital gains as a result of a transfer at death.