Do I Have to Pay Taxes on a Gift?
If you are lucky enough to be receiving a gift from a family member or friend, you may wonder if the gift will be subject to income tax. Generally speaking, no, you do not have to pay income taxes on a gift you receive, and you generally do not have to report the gift to the IRS.
That's because gifts are not considered income for tax purposes. So, you can enjoy that large check, wad of cash, new car, stock transfer, or piece of real estate without owing more than a thank-you card to the gift giver.
What Is a Gift Tax?
While you may have heard the term "gift tax" before, it nearly always applies to the donor of the gift, not the recipient of the gift.
There are certain limited situations in which a gift recipient may agree to pay the tax instead, but this is something that should be arranged only after working with a tax professional.
It is also possible that the IRS would ask the gift recipient to pay the gift tax if the tax isn't paid by the donor, but this rarely happens.
Understanding the Gift Tax
The gift tax is misunderstood by many, in part because it is somewhat complex and counter-intuitive. As noted above, where applicable, the gift tax applies to the gift giver and not the gift receiver.
The next thing to understand about the gift tax is that it only applies to large gifts. There are exclusions in place that allow most gifts to stay under the IRS's radar. For the gift tax to apply in 2020, for example, the gift had to exceed the $15,000 annual exclusion and the $11.58 million lifetime exclusion.
Even when gifts exceed the exclusions, the gift tax may still not apply and only a gift tax form will be required when filing taxes.
Read more details about the gift tax and when it applies on FindLaw's page on reducing estate taxes involving gifts. If you have questions about your unique situation, consider reaching out to a tax lawyer in your area.