An individual can make a gift of cash or other property to any individual each calendar year. The general rule is that any gift is a taxable gift, but there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.
- Gifts that are not more than the annual exclusion for the calendar year.
- Tuition or medical expenses you pay for someone (the educational and medical exclusions).
- Gifts to your spouse.
- Gifts to a political organization for its use.
- Gifts to qualified charities (a deduction is available for these amounts).
A separate annual exclusion applies to each person to whom you make a gift. If you are married, both you and your spouse can separately give up to the annual exclusion (even to the same person) without making a taxable gift.
Most gifts are not subject to the gift tax and most estates are not subject to the estate tax. (Only about 2% of all estates are subject to the estate tax). For example, there is usually no tax if you make a gift to your spouse or a qualified charity or if your estate goes to your spouse or qualified charity at your death. If you make a gift to someone else, the gift tax does not apply until the value of the gifts you give that person is more than the annual exclusion for the year.
For more info, refer to the IRS's Publication 950, Introduction to Estate and Gift Taxes.