IRS Tax Tip 2006-14 If you gave any one person gifts in 2005 that valued at more than $11,000, you must report the total gifts to the Internal Revenue Service and may have to pay tax on the gifts. * ** *** **** The person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value.**** Gifts include money and property, including the use of property without expecting to receive something of equal value in return. If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift. There are some exceptions to the tax rules on gifts. The following gifts do not count against the annual limit: � Tuition or Medical Expenses that you pay directly to an educational or medical institution for someone's benefit � Gifts to your Spouse � Gifts to a Political Organization for its use � Gifts to Charities If you are married, both you and your spouse can give separate gifts of up to the annual limit to the same person without making a taxable gift. Annual Exclusion A separate annual exclusion applies to each person to whom you make a gift. For 2002, 2003, 2004 and 2005, the annual exclusion is $11,000. Therefore, you generally can give up to $11,000 each to any number of people in 2002, 2003, 2004 and 2005, and $12,000 in 2006 and none of the gifts will be taxable. If you are married, both you and your spouse can separately give up to $11,000 to the same person in 2002, 2003, 2004 or 2005 ($12,000 in 2006) without making a taxable gift. If one of you gives more than $11,000/$12,000 to a person in any one of these years, refer to gift splitting in Publication 950, Introduction to Estate and Gift Taxes. Gifts to individuals are not deductible on the donor's income tax returns.