Instead of guessing, why didn’t anyone read my link to the actual tax code?
Shucks, my link to the IRS website was garbled. I fixed it.
IRS clearly spells it out.
First, there is a separate annual exclusion applies to each person to whom you make a gift.
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, and $13,000 on or after January 1, 2009, the annual exclusion applies to each gift.
The gift tax annual exclusion is subject to cost-of-living increases.
There is also a separate lifetime exemption of $345,800. So it appears you can give one person or several a total of $1,000,000 (345,800 tax credit) tax free, even in one year. But double check with CPA first.
“Applying the Unified Credit to Gift Tax
After you determine which of your gifts are taxable, you figure the amount of gift tax on the total taxable gifts and apply your unified credit for the year.
Example. In 2008, you give your niece, Mary, a cash gift of $8,000. It is your only gift to her this year. You pay the $15,000 college tuition of your friend, David. You give your 25-year-old daughter, Lisa, $25,000. You also give your 27-year-old son, Ken, $25,000. Before 2008, you had never given a taxable gift. You apply the exceptions to the gift tax and the unified credit as follows:
1. Apply the educational exclusion. Payment of tuition expenses is not subject to the gift tax. Therefore, the gift to David is not a taxable gift.
2. Apply the annual exclusion. The first $12,000 you give someone in 2008 is not a taxable gift. Therefore, your $8,000 gift to Mary, the first $12,000 of your gift to Lisa, and the first $12,000 of your gift to Ken are not taxable gifts.
3. Apply the unified credit. The gift tax on $26,000 ($13,000 remaining from your gift to Lisa plus $13,000 remaining from your gift to Ken) is $5,120. For more information, see the Table for Computing Gift Tax in the Instructions for Form 709. You subtract the $5,120 from your unified credit of $345,800 for 2008. The unified credit that you can use against the gift tax in a later year is $340,680.
You do not have to pay any gift tax for 2008. However, you do have to file Form 709. ”
