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 circumstances 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: Maximum tax-free gift
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 circumstances.
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