Can gifts of property or stock qualify under the annual gift tax limit, and how are they valued?
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Yes, gifts of property or stock can qualify for the annual gift tax exclusion, provided certain requirements are met. Here’s a detailed explanation of the rules and valuation methods:
1. Annual Gift Tax Exclusion
Eligibility of Property and Stock Gifts:- The annual exclusion applies to gifts of any type of property, including real estate, stocks, bonds, or other assets, as long as the gift is of a “present interest” (i.e., the recipient has immediate rights to use, possess, or enjoy the property).- Gifts of “future interests” (where the recipient’s enjoyment is delayed, such as certain trusts or remainders) do not qualify for the annual exclusion.
2025 Exclusion Amount:- For 2025, the annual exclusion is $19,000 per recipient. This means you can give up to $19,000 in value to as many individuals as you wish in 2025 without incurring gift tax or using your lifetime exemption.
Gift Splitting:- If you are married, you and your spouse can “split” gifts, effectively doubling the exclusion to $38,000 per recipient per year, provided both spouses consent and file the appropriate election on Form 709.
2. Valuation of Gifts
General Rule:- The value of a gift of property or stock is its fair market value (FMV) on the date the gift is made.
How FMV is Determined:- For real estate: FMV is typically established by a qualified appraisal, considering comparable sales, location, and condition.- For publicly traded stock: FMV is the mean between the highest and lowest quoted selling prices on the date of the gift.- For closely held stock or non-publicly traded assets: FMV is determined based on net worth, earnings, dividend capacity, and other relevant factors, often requiring a professional appraisal.
Documentation:- The donor should maintain thorough records, including appraisals and supporting data, to substantiate the reported value in case of IRS review.
3. Reporting Requirements
- If the total value of gifts to any one recipient exceeds the annual exclusion ($19,000 in 2025), the donor must file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, to report the gift and apply any excess against the lifetime exemption.
- Even if no tax is due (because of the annual exclusion or lifetime exemption), the reporting requirement applies if the exclusion is exceeded.
4. Special Considerations
- Present vs. Future Interest: Only gifts of present interests qualify for the annual exclusion. For example, an outright gift of stock qualifies, but a gift of stock in a trust where the beneficiary cannot access it until a future date does not.
- Basis for Recipient: The recipient of a gift takes the donor’s cost basis in the property or stock, which is relevant for future capital gains tax if the asset is later sold.
5. Summary
- Yes, gifts of property or stock can qualify for the annual exclusion if they are gifts of present interests.
- They are valued at their fair market value on the date of the gift.
- Proper documentation and, if necessary, a professional appraisal are essential.
- If the value to any one recipient exceeds the annual exclusion, a gift tax return must be filed.
These rules are grounded in the Internal Revenue Code and IRS regulations, specifically IRC §§ 2503 and 2512, and are further detailed in IRS instructions and publications.
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