Last month, the Minnesota Legislature passed the Omnibus Tax Bill. Erik Doerr wrote a great overview of the Tax Bill for Epilawg, check it out here. My article below will focus on the new (or reinstated) Minnesota Gift Tax.
The Minnesota Gift Tax law will operate similar to the Federal Gift Tax. It includes an annual exclusion. Each year, a donor can give the annual exclusion amount (currently $14,000) to as many recipients as he or she prefers. The annual exclusion operates as reporting threshold. Once someone gifts more than the annual exclusion, he or she is required to file a gift tax return. The gift is NOT taxed, but the amount above the exclusion is charged against that person’s Lifetime Exemption*. Since these gifts necessitate the filing of a gift tax return, we (and the Internal Revenue Code) call them taxable gifts.
In addition to the annual exclusion, Minnesota has a Lifetime Exemption* of $1,000,000.
An Example:
If I give $15,000 to ten of my best pals, I have exceeded the annual exclusion threshold by $1,000 on all ten gifts and so I must file a gift tax return reporting $10,000 in taxable gifts. I have used up $10,000 of my $1,000,000 Minnesota Exemption and so over the course of my lifetime, I can gift an additional $990,000 in taxable gifts before paying Minnesota Gift Tax.
So now you understand the annual exclusion, taxable gifts, and the MN lifetime exemption. Here is a bit more information on what constitutes a taxable gift for the Minnesota Gift Tax. Minnesota residents must report all taxable gifts of real property, tangible personal property, and intangible personal property. In addition, non-Minnesota residents must report taxable gifts of real or tangible property located in Minnesota at the time of the gift.
It is necessary to point out that some gifts fall outside of the Minnesota and Federal Gift Tax Statutes. See this article by Jamie Held for gifts that are not subject to gift taxes.
The new Minnesota Gift Tax also has a three year look-back rule. Gifts that are made within three years of a donor’s death will be added back into the donor’s estate. The donor’s estate then receives a credit for any gift tax paid on those gifts.
*I use the term exemption even though it is actually a tax credit. It is a significant distinction for professional advisors but we often use the term exemption when discussing gift and estate taxes with clients.
Here is a link to the Omnibus Tax Bill text. The Minnesota Gift Tax is in Article 7.
Photo Attribution: TBoard on Flickr (http://www.flickr.com/photos/tboard/)
