Gift Tax Basics
Did you know there was a gift tax? Yup, it's true. When we hear the words gift tax, it can be a little scary. However, for most of us there is nothing to worry about, it sounds much worse than it really is.
For starters if you decide to give someone property, money or anything of value without receiving anything of value in return, this is considered a gift. There are generally two amounts to consider when making any gifts. First, the yearly amount and then second the lifetime exclusion amount. Here is how it works:
As of January 1, 2018 you can gift up to $15,000.00 per year per recipient. If you gift more than that amount to one person you will be required to prepare a gift tax return, really just an IRS form, along with your regular tax return. There will not be any tax due, it is just for informational purposes for the IRS.
Each person is allowed to gift up to $11,180,000.00 in their lifetime to one person. Most of us will not reach that amount in our lifetime. Below are some specifics and clarifications to make it even easier to understand how this tax affects you:
This current lifetime exemption of $11,180,000.00 is good until the end of 2025, at the beginning of 2026 the lifetime exemption will revert back to the 2017 exemption rate of $5,490,000.00 per person. This is also dependent upon what the current tax law is, and if there have been any extensions or amendments.
The gift tax applies on gifts of more than $15,000.00 per recipient, meaning you can gift to your daughter and son and whoever else you want to share the love with. The lifetime exemption is also per recipient as well.
In addition to the above, if you are married, you can gift and your husband can gift to the same person, meaning if you and your husband each gifted your son $15,000.00 for a total of $30,000.00 in one year, you would not be required to file a gift tax return.
If you have to file a gift tax return, unless you gifted above the lifetime exclusion of $11,180,000.00, you will not pay taxes on it. The gift tax returns are a way for the IRS to track your gifting against your lifetime exemption.
Remember that gifts include giving money for weddings, college, vacations, down payments on houses and even a zero percent loan to a loved one.
If you are gifting medical expenses or college to a loved one, you can avoid classifying it as a gift if you pay the costs directly to the hospital or school
Gifts between spouses are typically not counted towards your gift tax exclusions, yearly or lifetime.
Hopefully gift tax is a little more clear and a little less scary.
If you have any questions about your specific tax situation please consult a tax professional. Please do not take this article as legal advice, all of the information contained herein is my opinion based on the materials I have read.