The federal gift tax is a tax on the transfer of property from one individual (the donor) to another (the donee) when the donor receives nothing—or less than full value—in return. The tax applies whether the donor intends the transfer to be a gift or not.
The gift tax applies to the transfer of a gift of any type of property. You make a gift if you give property (including money) or the use of or income from property without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.
For additional information, see Internal Revenue Service (IRS) Form 709 and its instructions.
In Pennsylvania, as in all states, the federal gift tax applies to transfers of property where the donor does not receive full value in return. This tax is governed by federal law, not state law, and it encompasses any type of property, including money, real estate, or personal items. When a person gives a gift, sells something for less than its market value, or extends a loan without interest or at a below-market interest rate, it may be considered a gift for tax purposes. The donor is typically responsible for paying the gift tax. Each year, there is an annual exclusion amount for gifts to any one person that is not subject to the tax. Beyond this exclusion, if the value of gifts to any one person exceeds the annual exclusion amount, the donor must file IRS Form 709 to report the gift. The lifetime gift tax exemption also plays a role in determining whether gift tax is due. It's important to consult with an attorney or tax advisor for specific guidance, as the IRS regulations and exemptions can change.