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If a person receives a gift worth over $10,000 from another American, it is potentially taxable, but how is the "fair market value" of the gift determined?

For example, let's say a man gives his girlfriend a diamond ring that cost $80,000 at the jeweler, but if the girl were to sell it, she might only receive $35,000. In other words, if she had the ring appraised, the appraised value is $35,000.

Is the value of the gift considered the retail purchase price or the appraised value?

As long as we are on the subject of diamond rings, do women who become engaged have to declare diamond rings as gifts and pay taxes on them if their value is over the limit?

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    Gift taxes, if applicable, are filed and paid by the donor, not the recipient. The current gift exemption is $15k (not $10k) per year per donor-recipient pair. Even gifts over that amount don't typically trigger any immediate taxes, but must be declared by the donor because they reduce the limit on the donor's future tax-free estate. – nanoman Jul 17 '18 at 17:11
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Is the value of the gift considered the retail purchase price or the appraised value?

It is the appraised value. See the IRS's Frequently Asked Questions On Gift Taxes

If the gift is very expensive, you would need a receipt from a professional appraisal in case of audit.

As long as we are on the subject of diamond rings, do women who become engaged have to declare diamond rings as gifts and pay taxes on them if their value is over the limit?

First, the giver of the gift would be responsible for any tax, not the recipient.

Second, in the United States, this is dependent on state. In most cases, an engagement ring is considered to be a conditional gift -- that is, conditional on marriage, and if there is no marriage, it will be returned. In that case, the gift is not "completed" until the marriage, at which point no gift tax is considered because you are spouses.

However, other states consider an engagement ring to be a completed gift, in which case it would fall under the gift tax.

If you are in a position where you expect the gift tax to matter (that is, the ring will be worth more than $15,000 and you expect your estate to be more than $11,180,000 when you die), then you would be advised to seek out a CPA.

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    You might add a note to clarify that the giver pays the tax, not the receiver, as the question seems to confuse that. – Joe Jul 17 '18 at 18:46
  • That's been added. – Magua Jul 18 '18 at 2:53

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