Who takes the tax bite when one person gives a cash gift to another? For example, assume your father gives you a gift of $10,000 cash. Do you have to report that on your taxes, or are any taxes your father's responsibility? Does it make a difference if the gift comes from a friend instead of a family member? In general, a gift of cash you receive is not treated as reportable income and you do not have to pay taxes on it. There is an important caveat to this general rule, however.
Gifts are Not Taxed
Publication 525 from the U.S. Internal Revenue Service, "Taxable and Non-Taxable Income," states that money received as a gift "is not included in your income."
If you receive a gift that itself produces income, the income produced must be reported on your taxes. For example, if you receive a $10,000 certificate of deposit as a gift, the initial value of the gift is not reportable income. However, any interest earned from the CD is considered ordinary income and must be reported.
The IRS has a complex set of "Gift Tax" rules that affect the giver of the gift rather than the recipient. Gifts that exceed a specified amount (which changes from year to year) or that exceed a lifetime cap on gift amounts may subject the giver of the gift to additional taxes.
Each year, the IRS updates Publication 950, "Introduction to Estate and Gift Taxes," and provides the latest rules on exemptions and responsibilities for gift taxes. For the 2012 tax year, most gifts under $13,000 were not subject to any additional tax.
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