True Gifts

A true gift is property or cash you receive without providing anything in return. This includes real estate. Low-interest or interest-free loans are not gifts, nor is cash or property you receive in exchange for goods or services.

Annual Exclusions

As of 2009, you may give up to $13,000 in cash or gifts to an individual without filing a gift tax return. This includes gifts of real estate. If you give a gift that has a value of over $13,000, you must file a federal gift tax return Form 709.

The IRS does not allow someone who gives a gift to claim a deduction on their tax return, unless that gift is to an eligible charity. The donor of any gift, including real estate, needs to know the value of the property at the time it is given as a gift. If the value exceeds the annual exclusion amount of $13,000, the gift giver must file IRS Form 709. Still, this does not guarantee the donor will have to pay gift tax, because as of 2009 the lifetime exclusion limit for gifts is $1,000,000.

Rules for the Recipient

Because the IRS does not consider gifts, including real estate, as income, the person who receives the gift does not have to include it in their tax return or pay any sort of taxes. However, if you receive a gift and you earn income from, that gift, you will need to report and pay tax on that income, if applicable. For example, if you were gifted real estate that you later earned rental income from, the profits from that rental must be reported to the IRS. You may also have to pay gift tax if you receive a gift of real estate and sell it for more than the property was worth when you received it.