Complying with the annual gift tax limit can save you time and money when you are giving to family, friends and others.
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Are you considering giving cash or property to loved ones or others in 2024? Knowing the annual gift tax exclusion can save you money and spare you from filing gift tax returns.
Here’s what you need to know about the federal gift tax and how much you can offer as a one-time gift this year without worrying about tax reporting.
The gift tax, a federal tax ranging from 18% to 40%, applies to gifts individuals make throughout the year. While the giver typically pays the tax (if any), there are some circumstances where the recipient could be responsible. Additionally, the estate bears the federal gift tax responsibility if the giver dies before the tax is settled.
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To navigate federal gift tax, most people leverage exemptions. One is the annual gift tax exclusion, also known as the gift tax limit, a set dollar amount adjusted yearly for inflation. You can gift this amount annually to as many recipients as you desire, and if you're married, your spouse can also.
Note: Certain gifts, such as those to spouses, charitable organizations, political entities, educational institutions (for tuition), and healthcare providers (for medical care), may also be exempt.
It’s a good idea to consult with a tax professional for sizable gifts to ensure compliance with tax rules and regulations.
For 2024, the annual gift tax limit is $18,000. (That’s up $1,000 from last year’s limit since the gift tax is one of many tax amounts adjusted annually for inflation.) For married couples, the combined 2024 limit is $36,000.
For example: If you are married and have two married children and two grandchildren, you and your spouse can give up to $36,000 to each of your kids, their spouses, and the grandchildren in 2024 without having to file a gift tax return or pay any tax. This means you can give a total of $216,000 in tax-free gifts.
Remember: staying under these limits per recipient exempts you from filing a gift tax return for the year. However, the annual limit is time-sensitive, meaning you need to make 2024 gifts before Dec. 31, 2024.
Last year (2023), the annual gift tax limit was $17,000. For married couples, the combined 2023 limit was $34,000. (These are the numbers you’ll refer to for federal income tax purposes in this 2024 tax filing season.)
If you exceed the annual gift tax limit, you may have to file a federal gift tax return (IRS Form 709). But exceeding the limit doesn't necessarily result in owing tax, thanks to a high lifetime estate and gift tax exemption.
The 2024 lifetime estate tax exemption is $13.61 million (double for married couples). (In 2023, it was $12.92 million.) This shields most people from having to pay federal gift tax. You report excess amounts beyond the annual exclusion on Form 709, but actual gift tax payment only occurs if the total surpasses the lifetime limit.
Looking ahead, the lifetime estate and gift tax exemption is scheduled to be reduced by half in 2026 and adjusted for inflation. (Estimates suggest a reduction close to $7 million or less).
Understanding the nuances of the gift tax exclusion can help you navigate the gift-giving landscape in a way that saves you time. But giving and estate planning can be complex, so consult a tax professional for personalized advice tailored to your unique circumstances.
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Senior Tax Editor, Kiplinger.comAs the senior tax editor at Kiplinger.com, Kelley R. Taylor simplifies federal and state tax information, news, and developments to help empower readers. Kelley has over two decades of experience advising on and covering education, law, finance, and tax as a corporate attorney and business journalist.
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