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| "Gift" is the painting's title |
For the past couple of years the annual gift tax exclusion amount was $13,000. This meant that a person could gift up to $13,000 to another person without (a) having to file a gift tax return and utilizing a portion of their lifetime gift tax exemption amount or (b) filing a gift tax return and paying the gift tax in order to avoid a loss of a portion of their lifetime gift tax exemption amount. Of note, the gift tax applies to any type of property transfer, personal, real, intangible, etc. IRC §2511(a) Thus, the transfer of stock, a home or a musical copyright would count as a gift if certain conditions were met.
In October, the IRS announced that the annual gift tax exclusion amount for 2013 would be $14,000. The reason for the increase is to reflect inflation. In prior years, inflation did not merit an increase in the exclusion amount.
There is no California gift tax. Hence, the increase only affects the federal gift tax.
It should be noted that certain items are not subject to gift tax regardless of the size of the gift. For example, gifts made to charity, payment of medical expenses, payment of school tuition and intra-spousal gifts are all considered exempt from the gift tax. This means that a person could pay the entire tuition costs for a student attending McGeorge School of Law for Spring 2013, $21,486, and not have to worry about any gift tax liability or ramifications. I use McGeorge as a reference because I went to school there.
As of this writing, there has been no legislation affecting the estate and gift tax regime for 2013. For both of these items, the exclusion amount for 2012 is $5.12M. If no legislation is passed, the estate and gift tax will revert back to $1M exclusion limits for each. Still, the last time the estate and gift tax was addressed occurred in December 2010 in a lame duck session of Congress. Hence, just because it is the 11th hour, it does not mean that nothing will be enacted.
So while the annual gift tax exclusion amount for 2013 has been addressed, the more important lifetime exclusion amounts for both gifts and estates remain a mystery. Ultimately, something will occur in the next month or so. Either the estate and gift tax will be amended to increase the lifetime exemption amount or nothing will happen and each will revert back to $1M. An optimist would say that at least some resolution will be reached shortly.
