The Gifts That Keep on Taking: How to Navigate the Gift Tax

In addition, health and education costs aren't subject to the gift tax. There's an unlimited gift tax exclusion for paying someone else's tuition or medical expenses, provided you pay the educational organization or care provider directly.

But if you make an interest-free or low-interest loan to a family member, you may be subject to income tax and gift tax. As a lender, you are taxable on the "forgone interest" of the loan. In other words, you'll be taxed on the amount equal to what you would have received had you charged interest at the applicable federal rate.

If the gift is property (essentially, anything other than cash), the basis and the holding period of the property will transfer to the recipient. So if you want to give stock you bought 20 years ago at $20 a share, and that stock is now worth $100 a share, the recipient will also take on your basis ($20 a share) and your holding period (20 years), so make sure you pass that information along with the gift.

Ideally, you should provide the appropriate documentation as well as the general information. You, on the other hand, need to calculate the fair market value of the shares you've given away, because that will be considered the amount of the gift for gift tax purposes.

The recipient of a gift that throws off income, such as dividend stock, will be responsible for paying the tax on the dividend beginning in the year the gift was made. The recipient will also have to pony up the capital gains tax incurred when the gift is sold.

After all, the gifts that keep on giving still come with a price.

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