Gift tax is a federal tax on the transfer of money or property to another person. Thankfully, because of annual and lifetime limits, few people end up owing it.
Updated Sep 9, 2024 · 5 min read Written by Tina Orem Assistant Assigning Editor Tina Orem
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The gift tax is a federal tax on transfers of money or property to other people who are getting nothing or less than full value in return. Two factors determine how much you can give away before owing taxes on the gifted amount: the annual gift tax limit and the lifetime gift tax limit.
The gift tax limit (also known as the gift tax exclusion) increased to $18,000 this year, up from $17,000 in 2023. For married couples, the limit is $18,000 each, for a total of $36,000. This amount is the maximum you can give a single person without having to report it to the IRS.
To be clear, exceeding the annual gift tax limit doesn't mean you have to pay a gift tax — it just means you need to submit IRS Form 709 to disclose the gift. The amount of your contribution that exceeds the annual limit will then be subtracted from your larger lifetime gift tax exclusion (more on this below).
The annual gift tax exclusion is a set dollar amount that you may give to someone without reporting it to the IRS. If you give away more than the annual exclusion amount in cash or assets (for example, stocks, land, a new car) to any one person during the tax year, you will need to file a gift tax return in addition to your federal tax return the following year.
The annual exclusion is per recipient, not the sum total of all your gifts. That means, for example, that you can gift $18,000 to your cousin, another $18,000 to a friend, another $18,000 to a neighbor, and so on in 2024 without having to file a gift tax return in 2025.
If you’re married, you and your spouse could each give away $18,000 in 2024 without needing to file a gift tax return in 2025. If you want to combine your annual exclusions to give someone $36,000, you can choose to take advantage of "gift splitting" [0]
Internal Revenue Service . Instructions for Form 709 (2023). Accessed Feb 13, 2024.Gifts between spouses are unlimited and generally don’t trigger a gift tax return. Although, if the spouse isn't a U.S. citizen, special rules may apply [0]
Internal Revenue Service . Instructions for Form 709 : Gifts to Your Spouse. Accessed Aug 2, 2024. Gifts to qualified nonprofits are charitable donations , not gifts.Simple tax filing with a $50 flat fee for every scenario
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In addition to the annual gift tax exclusion, you get a lifetime gift tax exclusion. Any amount you give over the annual limit is subtracted from your larger lifetime limit. Once you've gifted over your lifetime amount, you may begin to owe taxes.
The 2024 lifetime gift limit is $13.61 million, up from $12.92 million in 2023. Because the exemption is per person, married couples can exclude double that — $27.22 million — in lifetime gifts.
In 2026, the lifetime exclusion amount will revert back to its pre-2018 level of about $5 million (as adjusted for inflation) per individual [0]
Internal Revenue Service . Estate and Gift Tax FAQs. Accessed Feb 13, 2024.The gift tax return that you need to file if you exceed the annual limit simply keeps track of that lifetime exclusion. So if you don't gift anything during your life, then you have your whole lifetime exclusion to use against your estate when you die.
“Think about buckets or cups,” says Christopher Picciurro, a certified public accountant and co-founder of accounting and advisory firm Integrated Financial Group in Michigan. Any excess over the annual limit “spills over” into the lifetime exclusion bucket.
If you give your brother $50,000 in 2024, you’ll use up your $18,000 annual exclusion. The bad news is that you’ll need to file a gift tax return in 2025, but the good news is that you probably won’t pay a gift tax. Why? Because the extra $32,000 ($50,000 - $18,000) simply counts against your lifetime exclusion. Next year, if you give your brother another $50,000, the same thing happens: you use up your annual exclusion and whittle away another portion of your lifetime exclusion.
The donor, not the recipient, typically pays the gift tax. According to the IRS, money or property that is transferred to another person without receiving anything in exchange is a gift. Gifts that exceed a certain value may be subject to a tax.
In most cases, no. Assets you receive as a gift or inheritance typically aren’t taxable income at the federal level. However, if the assets later produce income (perhaps they earn interest or dividends, or you collect rent), that income is probably taxable [0]
Internal Revenue Service . Publication 525: Taxable and Nontaxable Income. Accessed Feb 13, 2024.. Also, keep in mind that while there is no federal inheritance tax , some states may impose their own.
Gifts of cash or property to family or friends are not tax-deductible. Only charitable donations to qualified nonprofits may be tax-deductible [0]
Internal Revenue Service . Frequently Asked Questions on Gift Taxes. Accessed Jan 17, 2024.Taxpayers typically only pay gift tax on the amounts that exceed the allotted lifetime exclusion, which is $13.61 million in 2024. Gift tax rates range from 18% to 40%. Of course, there are exceptions and special rules for calculating the tax, so check the instructions for IRS Form 709 for all the details [0]
Gift tax rates$80,001 to $100,000
$100,001 to $150,000
$150,001 to $250,000
$250,001 to $500,000
$500,001 to $750,000
$750,001 to $1,000,000
$1,000,000 and over
Caring is sharing, but some situations inadvertently lead to a gift tax return, pros say.
If grandparents put, say, $40,000 in a 529 plan for a grandchild, that may trigger the gift tax exclusion because it's over the limit.
A special rule allows gift givers to spread one-time gifts across five years’ worth of gift tax returns to preserve their lifetime gift exclusion [0]
If you gift your child $40,000 to help with wedding costs or offer to pay for an expensive honeymoon, this could trigger a gift tax return.
If you’re paying tuition or medical bills, paying the school or hospital directly can help avoid the gift tax return requirement (see the instructions to IRS Form 709 for details) [0]
Lending money to friends and family can be tricky, and the IRS can make it even worse. It considers interest-free loans as gifts. Or, if you lend them money and later decide they don't need to repay you, that's also a gift.
“Let’s say you live by Grandma, so for convenience, we're going to put you on Grandma's bank account. Guess what just happened?” Picciurro says. “If you're put as a joint [owner] on a bank account with somebody and you have the right to take the money out at any time, essentially Grandma is giving you a gift.” This applies to joint accounts when the other owner is not your spouse.
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