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Question: What are the tax consequences of making a large gift to a family member?

Answer: A gift of cash to a family member is not generally subject to extra income taxes for either the donor or the done.  Neither is the gift income tax deductible.

Large gifts may be subject to federal or state gift taxes.  The federal government allows a donor to make gifts of up to $13,000 in a calendar year to each prospective done without any gift tax consequences.  These types of gifts are referred to as annual exclusion gifts.

If a donor wants to make gifts in excess of annual exclusion gifts, the donor can choose to use some or all of his or her lifetime exemption.  A taxpayer in 2012 has a $5.12 million lifetime exemption.  The taxpayer uses the lifetime exemption to shelter gifts that would otherwise be subject to gift taxes from those taxes.  Any part of the exemption used to shelter gifts during lifetime reduces the amount of the exemption available against federal estate taxes at death.

Gifts in excess of the lifetime exemption amount are subject to federal gift taxes at a rate of 35%.

Until recently, Connecticut and Tennessee were the only two states that imposed a gift tax on large gifts made by residents.  However, Tennessee recently repealed its state gift tax.

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