Gifted Property Laws

by Phil M. Fowler ; Updated July 27, 2017

Gifted property laws are generally not complicated, other than the federal gift tax laws that can apply to certain gift transfers. In general, gifted property is owned by the person who receives the gift. However, if the gifted property is of enough value, the donor may have to file a federal gift tax return and, in some cases, pay a federal gift tax on the transfer.

Contracts

Agreements to provide property by gift are unenforceable because the agreement lacks consideration. Consideration is a legal term of art that generally means something of value bargained for. A gift agreement lacks consideration because the person receiving the gift does not give any consideration. Accordingly, if the donor decides at any time not to go through with the gift, the donor can back out of the agreement even if it was in writing.

No Rescission

Even though a pre-transfer agreement is unenforceable, the donor cannot take the property back once the transfer has actually been made. For real estate, the recipient will receive a deed to the gifted property, and deeds are enforceable even if they lack consideration. For all property, the recipient is the legal owner of the property after the transfer takes place.

Federal Gift Tax

No states impose a gift tax, but the federal government imposes a gift tax on certain high-value transactions. Generally, the IRS collects a gift tax on the value of any gifted property in excess of the annual exemption, which is $13,000 as of 2009. Since a gift by definition means the recipient is not purchasing the property for value, the value for tax purposes is the estimated fair market value at the time of transfer. Gifts to spouses, though, are never subject to the federal gift tax.

Lifetime Exemption

Under the lifetime exemption rule, a donor can give up to $1,000,000 worth of property to another person without ever having to pay the gift tax. Keeping track of the lifetime exemption can be somewhat tedious because it can span over many different tax years, but it can also save a lot of money on gift taxes. If you give over $13,000 worth of property to a person during tax year 2010, but your total lifetime gifts to anyone are less than $1,000,000, then you will not have to pay any gift tax.

Estate Tax Returns

The donor of gifted property may have to file an gift tax return even if no gift tax is actually due to the IRS. Generally, any gift worth less than $13,000 does not require a gift tax return, but any gift above $13,000 does require a return. If a husband and wife make a joint gift, the amount increases to $26,000. Again, it is the donor who must file the tax return, not the person receiving the gift.

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About the Author

The Constitution Guru has worked as a writer and editor for "BYU Law Review" and "BYU Journal of Public Law." He is an experienced attorney with a law degree and a B.A. degree in history with an emphasis on U.S. Constitutional history, both earned at Brigham Young University.

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