How Much Money As a Gift is Taxable?
As of January 1, 2025, the annual IRS gift tax exemption is $19,000. Donors (givers) can give this amount every year to one person without filing Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. Annual gifts over $19k may not be subject to tax, because of the $13.99 million per individual lifetime gift limit. If a donor gives someone $20,000 in one year ($1,000 over the annual exclusion), the donor must report the gift on Form 709. However, the excess $1,000 simply reduces the lifetime exemption.
Most donors don’t exceed the lifetime gift threshold. However, they often exceed the annual limit. Filing the form, with or without paying tax, usually invites unwanted IRS scrutiny. Fortunately, a St. Petersburg estate planning lawyer has several ways to avoid what one federal judge called the steely gaze of the IRS. These strategies usually make gifts an effective part of an overall estate plan. Smaller transfers while the donor is still alive makes the probate process easier and also allows donors to better enjoy giving gifts.
What is a Gift?
Quite simply, a gift is anything of value transferred to another person, if the donor doesn’t expect something of equal value in return. This definition includes not only cash but also property, investments, and debt forgiveness.
Equal value exchange is often the key concept. Assume Bill gives Bill Jr. a large house on a hundred acres of land, if Bill Jr. pays the school and other property taxes. The property taxes are practically inconsequential when compared to the value of the house and land. However, since Bill gets something back, the house and land may not qualify as a “gift” under IRS rules. A St. Petersburg estate planning lawyer must review the specific transaction to determine its gift/non-gift status.
In most cases, the doner does not pay any tax. The responsibility to report and pay any applicable tax falls entirely on the giver. Also, since gifts aren’t income, recipients need not report them on their tax returns.
Avoiding the Gift Tax
In addition to the annual limit, which allows donors to spread out large gifts over several years, several other tax aversion options are available.
- Spouse Gift Splitting: Married couples can “split” a gift and effectively double the $19,000 exclusion to $38,000 per recipient per year. The couple must file Form 709 to record the gift splitting, but no tax will be owed, provided the gift stays within the combined limit.
- Directly Medical Bill and Tuition Payment: Payments for qualified medical expenses don’t count toward the annual or lifetime limit, if the donor directly pays the provider. This strategy is very popular among grandparents who want to help their grandchildren with college costs.
- Minimal Immediate Value Transfers: Stocks, bonds, rural real estate, and other non-cash assets often have practically no current values and sky-high future values. If Bill gives Bill Jr. stock options which are worth nothing at the time of gift, the stock options never count toward the gift tax limits, regardless of how valuable they become.
- Charitable Gifts and Spousal Transfers: Qualified donations are not gift taxable and are usually tax deductible. On a related note, donors can give unlimited gifts to their citizen spouses without triggering the gift tax
By understanding and using the IRS’s gift tax rules wisely, most people can transfer significant wealth without ever paying a dime in gift taxes. Careful planning, documentation, and consultation with a financial advisor or estate attorney can help ensure compliance while achieving your financial goals.
Contact a Thorough Pinellas County Lawyer
The essential estate planning process isn’t as complicated as many people believe it is. For a confidential consultation with an experienced estate planning lawyer in St. Petersburg, contact Drude Tomori Law. We routinely handle matters throughout the Sunshine State.
Source:
irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
