Federal Transfer Tax System: Gift Tax Basics

Federal Transfer Tax System: Gift Tax Basics

First instituted by the Revenue Act of 1924, gift taxes are incurred when there is a voluntary transfer (i.e., gift) of cash or other property from one individual to another that is less than fair market value.

The Internal Revenue Service (IRS) defines fair market value as, “… the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” Each individual is allowed to donate up to $13,000 in cash or property per donor annually without facing a tax, a practice commonly referred to as the annual exclusion.

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