For tax purposes, what is the difference between a gift and an inheritance?

In the case of a gift, the donor is responsible for reporting the gift; the recipient of a gift is not required to pay taxes on the gift. The annual gift tax exclusion for 2013 is $14,000 (for 2012, $13,000).

You generally do not need to file a gift tax return unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.

An inheritance is received upon the death of the donor and may or may not be taxed based on federal law. For 2012, estates with a value of less than $5.12 million ($5.25 million for 2013) are not subject to estate tax.