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Q. How much money can you give to one person without triggering a gift tax?
a. $12,000 in 2006,up from $11,000 in 2005.
b. $12,000 in 2006, up from $10,000 in 2005.
c. It depends on your income
d. Any amount | The amount you can now give as a gift without triggering the gift tax is $12,000 per donor, per recipient, per year. In 2005, this figure was $11,000.
Don't expect the gift tax exemption to rise every year, since it increases in increments of $1,000 and is indexed to inflation.
Here's a little history on the gift tax exemption. In 1932, the gift tax was made lower than the estate tax in order to encourage people to transfer their wealth during their lifetimes. A lifetime exemption was established, and the first gift tax exemption was set at $5,000 per recipient.
But in the decades that followed, numerous changes came in quick succession, most of which resulted in higher gift and estate taxes, a lower gift tax exemption, and a lower lifetime exemption. The incentive to transfer wealth through gifts was greatly diminished. It wasn't until 1982 that the gift tax exemption was raised to $10,000 (accompanied by other changes). The per donee exemption then remained at $10,000 for two decades. The Taxpayer Relief Act of 1997 stipulated that the exemption become indexed to inflation and increase in increments of $1,000. Even so, it took until 2002 for inflation to push the value of a dollar far enough to justify raising the exemption to $11,000. And on January 1, 2006, the exemption rose to $12,000
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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