Are you considering giving cash or property to loved ones or others in 2024? Being aware of 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 how the federal gift tax works and how much you can offer as a one-time gift tax-free this year.
The federal gift tax
The federal gift tax, ranging from 18% to 40%, applies to gifts made by individuals throughout the year.While the giver typically pays the tax (if any), there are some circ*mstances where the recipient could be responsible. Additionally, if the giver passes away before the tax is settled, the estate bears the federal gift tax responsibility.
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- The gift tax extends beyond cash transactions, encompassing real estate, vehicles, forgiven debts, insurance policy benefits, stock transfers, etc.
- For tax purposes, the gift amount is the item's "fair market value" at the time of the gift.
Gift tax limits: How much gift money is tax-free?
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.
Federal gift tax exemption 2024
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.
Gift tax limit 2023
In 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.)
What if you exceed the gift tax limit?
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.
Lifetime gift tax exemption changes in 2026
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 about $7 million or less). If you are wealthy and have a large estate, gifts given in 2026 or beyond (if the limit sunsets as scheduled) could be subject to up to 40% gift tax. Meanwhile, gifts given before 2026 benefit from the high lifetime tax exemption.
Gift tax exclusion: Bottom line
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 circ*mstances.
Related
- States That Won't Tax Your Death
- Take Advantage of the Lifetime Estate and Gift Tax Exclusion
- Federal Tax Brackets and Income Tax Rates
- Types of Income the IRS Doesn't Tax
FAQs
Federal gift tax exemption 2024
What is the federal gift tax exemption for 2024? ›
For 2024, the annual gift tax exclusion is $18,000, meaning a person can give up to $18,000 to as many people as he or she wants without having to pay any taxes on the gifts. For example, a man could give $18,000 to each of his 10 grandchildren this year with no gift tax implications.
How much money can you gift a family member without paying taxes? ›
The IRS allows every taxpayer is gift up to $18,000 to an individual recipient in one year. There is no limit to the number of recipients you can give a gift to.
What are the new tax changes for 2024? ›
Standard Deduction Changes for 2024
For tax year 2024, the standard deduction for married couples filing jointly rises to $29,200, an increase of $1,500 from 2023. For single taxpayers, the standard deduction rose to $14,600, a $750 increase from the previous year.
What are the gift rules for 2024? ›
The annual gift tax exclusion is a set dollar amount that you may give someone without needing to report it to the IRS. The threshold is typically adjusted to account for inflation each year. The 2024 annual gift tax exclusion is $18,000, up from $17,000 in 2023.
How does IRS know you gifted money? ›
The primary way the IRS becomes aware of gifts is when you report them on form 709. You are required to report gifts to an individual over $17,000 on this form. This is how the IRS will generally become aware of a gift. However, form 709 is not the only way the IRS will know about a gift.
At what age is social security no longer taxed? ›
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
Do I have to report gifted money as income? ›
Generally, the answer to “do I have to pay taxes on a gift?” is this: the person receiving a gift typically does not have to pay gift tax. The giver, however, will generally file a gift tax return when the gift exceeds the annual gift tax exclusion amount, which is $17,000 per recipient for 2023.
Can you gift money to family members and deduct the amount from your taxes? ›
May I deduct gifts on my income tax return? Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions).
Who pays the gift tax, giver or receiver? ›
The federal gift tax exists for one reason: to prevent citizens from avoiding the federal estate tax by giving away their money before they die. The gift tax is perhaps the most misunderstood of all taxes. When it comes into play, this tax is owed by the giver of the gift, not the recipient.
For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.
Why is everyone owing taxes this year in 2024? ›
Under-withholding from Your Paycheck
Under-withholding is the #1 reason individuals owe taxes. This occurs when not enough tax is taken out of your paychecks throughout the year. If you haven't updated your W-4 form after a major life change, income adjustment, or second job, you might find yourself in this situation.
How to avoid gift taxes? ›
6 Tips to Avoid Paying Tax on Gifts
- Respect the annual gift tax limit. ...
- Take advantage of the lifetime gift tax exclusion. ...
- Spread a gift out between years. ...
- Leverage marriage in giving gifts. ...
- Provide a gift directly for medical expenses. ...
- Provide a gift directly for education expenses. ...
- Consider gifting appreciated assets.
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.
How to gift money tax-free? ›
“Gifts” can be made in cash or other assets – securities, closely held business interests, real estate, artworks, collectibles or any other type of property. So long as the total market value of your gifts does not exceed $18,000 per recipient in a calendar year, the transfers are entirely gift tax-free.
What are the IRS rules for gifting money to family members? ›
The total value of gifts the individual gave to at least one person (other than his or her spouse) is more than the annual exclusion amount for the year. The annual exclusion amount for 2023 is $17,000 and for 2024 is $18,000.
What is the standard deduction for 2024 for seniors? ›
For 2024, assuming no changes, Ellen's standard deduction would be $16,550: the usual 2024 standard deduction of $14,600 available to single filers, plus one additional standard deduction of $1,950 for those over 65.
Will the annual gift tax exclusion change in 2026? ›
Beginning January 1, 2026, the exclusion amount will be decreased to $5 million, indexed for inflation. Although the exclusion amount in 2026 had been projected to be approximately $6.4 million, increased inflation may render that estimate obsolete.
What are the changes for the child tax credit in 2024? ›
2024 child tax credit news update
The maximum refundable child tax credit amount was capped at $1,600 per dependent for this filing season. In tax years 2024 and 2025, the refundable amount would grow to $1,900 and $2,000.
How much can you inherit without paying federal taxes? ›
Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2024, the first $13,610,000 of an estate is exempt from taxes, up from $12,920,000 in 2023. Estate taxes are based on the size of the estate.
