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New Changes for Gift Tax Laws in 2016


February 11, 2016
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2016: new changes for gift tax laws

All gifts may be subject to IRS gift taxes, and some of those rules are becoming more stringent next tax year. According to a Motley Fool report, a prime example of a gift tax law that has become more strict is when gifts are given between U.S. citizens and foreign citizens. There are several issues taxpayers will need to take into account for all gifts, particularly from foreign cash gifts in 2016.

Giving gifts between U.S. and foreign citizens

The way gift taxes work for foreign citizens and U.S. citizens is that both transactions are subject to the same threshold limits. For instance, for any gift that is given that is beyond the $14,000 annual exclusion amount, even foreign citizens must file a gift tax return so that the exceeding amount can be reported. A primary benefit of the gift tax exemption is that the annual exclusion amount has a lifetime exemption that applies beyond the time of the transaction. For 2016, the lifetime exemption threshold will be $5.45 million, so a sizable amount is required for gift tax liability.

With regards to foreign citizens specifically, if these gifts are given to a spouse, there is an additional exemption that applies. The unlimited marital deduction enables spouses, even foreign citizens, to now have an annual $148,000 for 2016. However, if any gift between spouses of foreign citizens exceeds that threshold limit, the taxpayers must file gift tax returns. It is important to note, though, that these taxpayers can use the same lifetime exemption amount of $5.45 million.

An important change on receiving gifts from foreign citizens or companies

One of the unique factors of receiving gifts from foreign citizens is that the limitation amounts change. In 2016, taxpayers are still not subject to gift taxes on all gifts received, but they are required to report it on IRS Form 3520. For instance, if a gift received from a foreign citizen is in excess of $100,000, he or she must report it on IRS Form 3520. The important aspect of the new tax rules for next year is that gifts from overseas corporations or partnerships are subject to lower threshold limits because the gift values are adjusted for inflation every year. Next year, this limit will be $15,671.