Obama, The Nobel Prize And The IRS

President Obama's expected donation of his Nobel Prize cash could cause him tax headaches.

(AP Photo)

Regifting has a long and honorable history. No doubt even ancient peoples did it, passing on to someone else a gift they didn't want or need. But the term itself is of recent origin--credited to a 1995 episode of Jerry Seinfeld's eponymous series.

Since then, regifting has literally come out of the closet. In an poll, 60% of women and 40% of men admitted to having regifted. There's even a "Gift and Re-Gifts" neighborhood on .

Even more respectable is the practice of regifting a cash award to charity. Most recently, President Obama said he'd be donating the $1.4 million Nobel Peace Prize to charity.

That raises the question: What are the tax implications of getting a gift or prize, and what are the tax consequences of regifting it? It turns out that the answers are different for gifts and prizes.

Gifts: 'Tis better to receive.

When you receive a gift, there's no taxable income to you, no matter how large the gift. You can also regift that gift, without worrying about the Internal Revenue Service--so long as its value is $13,000 or less. That's because under something known as the annual gift exclusion, anyone can give anyone up to $13,000 a year in money or property without worrying about gift taxes.

Each person also gets a $1 million exclusion from gift taxes. So if you give (or regift) something worth more than $13,000, you must either eat into that $1 million exclusion or, if you've used that up, pay gift taxes. But again, the recipient of your gift owes no tax. (For more on gift giving and taxes, click here.)

One cautionary note here: The IRS can always challenge whether what you received (or gave) was really a gift. For example, the IRS is likely to consider a large gift from an employer to an employee to be taxable compensation. (For more on this, click here.)

Prizes are another story.

In contrast to most gifts, prizes and awards are taxable. This was not always so. Prior to 1986, many prizes were tax-free, generally hinging on whether the person awarded the prize had to perform services to receive it. As long as no significant services were a predicate to getting the award, there was generally no tax.