The gift tax special exclusion is the amount you can give to someone without the need of informing the IRS or being concerned with paying federal gift tax. In 2024, the annual gift tax exclusion is $18,000 per recipient, unlike the one of 2023 which stood at $17,000. This means you can give your children up to $18000 in cash or property annually without touching on your cumulative exemption for lifetime gifts and without needing to file for a return.
For individuals who are married, each person can pass on $18,000 for their children, that is, $36,000 yearly. This practice is called “gift splitting”. That means you and your partner can merge your exclusions without any tax consequence.
It’s vital to know that if you give more than $18000 in a year does not mean you have immediate gift taxes. Just report the excess using IRS Form 709 and it will go against your lifetime gift tax exclusion.
How does the lifetime gift tax exclusion work
Besides the yearly exclusion, there exists an exclusion for lifetime gift tax which is basically how much more you are allowed to give away as gifts without incurring federal taxes.
In 2024, the lifetime gift tax exclusion is $13.61 million, an increase from $12.92 million in 2023. This allows a person to give away a large amount of money without being subject to gift taxes, so that even if some other year they went over the previous limitation of annual exclusion, no taxes would be paid until they get beyond this limit.
For instance, if you give your child $50,000 in 2024, $18,000 is exempt from any annual gift tax but another part of it amounting to $32000 will go against lifetime exemption of the same tax. A return should also be filed although there won’t be any payments unless the sum total of all donations went beyond $13.16m.
Moreover if during your lifetime you fail to use the exclusion, when you die it will get applied to your estate lowering its taxable worth.
Who pays gift taxes
All possible taxes connected to gifts are paid by the donor, or rather the person who has given a gift. The recipient of such a gift is not responsible for any kind of tax on the amount he or she received. Should you exceed your lifetime gift exclusion limit, then it becomes liable to taxation under rules set forth by the IRS with respect to donor’s liability. Taxable gifts rate vary between 18% – 40% depending on how much was gifted.
Are there any exceptions to the gift tax
All possible taxes connected to gifts are paid by the donor, or rather the person who has given a gift. The recipient of such a gift is not responsible for any kind of tax on the amount he or she received. Should more than is permissible in a single year or over one’s lifetime be given as a gift, then it becomes liable to taxation under rules set forth by IRS with respect to donor’s liability. Taxable gifts rate vary between 18% – 40% depending on how much was gifted beyond limits which are set out in exclusion.
