If you give someone a gift of over $12,000 dollars a year, you are required by law to pay the tax on that gift over the gift tax amount. The gift giver is responsible, not the gift recipient, which seems to go contrary with one’s expectations.
What is a gift? A gift is anytime there is a transfer of property from one person to another. Another condition of a gift is where the giver is receiving less than the full value of the property in return, in many cases the giver is receiving nothing. What this also means is that the tax is supposed to be paid even if it’s not considered a gift.
For example, let’s say you sell your car to your son or daughter for $1. The market value of the car is worth $2,000, you’ve effectively given a gift of $1,999 to your son or daughter and if your total gift is over $12,000 that year, you owe a tax.
In addition to the annual limit, there is a lifetime gift limit of $2M and this is including anything in your estate that you may pass on. So, if you’re planning on giving any large gifts this year, remember to do so before December 31st and it’ll count for this year.