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Federal and Illinois Gift Tax

The federal government taxes the gratuitous transfer of property whether made during life or at death. The gift and estate tax laws have been combined so that, for most purposes, it doesn't matter whether you give it away now or later.

Gift Tax as Impacted by 2012 Taxpayer Relief Act:

  • Annual gift tax exclusion: Each year you may give away an amount equal to the annual exclusion to an unlimited number of individuals without incurring a gift tax. The annual exclusion amount is indexed for inflation. In 2013, the annual exclusion is $14,000. A married donor can, with the consent of his or her spouse, elect to treat a gift as if it was made by both of them so $28,000 can be gifted per person each year. In addition, payments of tuition or medical bills directly to the institution are not considered gifts so the total transferred can be in excess of the $14,000 per year.
  • Carry-over Basis: If you transfer appreciated property as a gift, the donee will use your basis (generally the purchase cost) in the property when it is sold.
  • Gift Tax Exemption Permanently Unified with Estate Tax Exemption: Years ago, the gift tax and the estate tax were unified—they shared a single exemption and were subject to the same rates. This was not the case in recent years. For example, in 2009, the gift tax exemption was $1 million while the estate tax exemption was $3.5 million. This limited the amount of lifetime gifts a person could make. For gifts made after 2010, the gift tax and estate tax are reunified with an overall $5 million exemption (with inflation $5.12 million in 2012) for both. The unification of the gift and estate tax exemption was scheduled to sunset in 2013 and the gift tax exemption would be $1 million. These sunset provisions were avoided by the passage of the 2012 Taxpayer Relief Act on January 1, 2013. This new law made the unification of the exemption amount for estate, gift and generation-skipping taxes to a single amount of $5,000,000 (as indexed for inflation) permanent for 2013 and future years. Based on inflation information, the gift exemption amount will be $5,250,000 for gifts made in 2013. In addition, the maximum tax rate was increased slightly from 35% to 40%. While an increase, this rate is significantly less than former top rate of 55%.
  • Illinois Gift Tax: While Illinois has no gift tax on lifetime transfers, the gifts are brought back into the estate for Illinois estate tax purposes.