In 2024, the annual gift tax exemption remains $17,000, allowing individuals to gift up to $17,000 to as many people as they wish—without owing taxes on those gifts. So, for instance, a generous grandfather can give $17,000 to each of his 10 grandchildren this year, without worrying about any tax surprises.
But what if he decides to go bigger? If Grandpa gifts each grandchild $21,000, he’s exceeded the exemption by $4,000 per gift. This would mean he’s potentially on the hook for gift taxes on that $40,000 excess.
How about married couples? Both spouses can give away \$17,000 each, allowing a couple like Cynthia and Joe to gift up to \$34,000 per person annually—perfect for spoiling their nieces and nephews tax-free.
❓ What Is the Gift Tax?
When a person gives money or property to someone other than their spouse or dependent, they may be required to pay gift tax. This federal excise starts at 18% and can reach up to 40% on certain gift amounts. The responsibility for paying the tax typically lies with the donor, not the individual receiving the gift. While recipients don’t face any immediate tax consequences, they may have to pay capital gains tax if they sell gifted property in the future.
Not all gifts get taxed.
Certain types of gifts are totally tax-free, like:
- ✅ Payments for school tuition or medical bills
- ✅ Donations to charity
- ✅ Political contributions
- ✅ Gifts to your spouse or dependents
💡 Lifetime Gift Tax Exemption
If a gift exceeds the 2024 annual $17,000 limit, that does not automatically trigger the gift tax. Also, the IRS allows a person to give away up to $12.92 million in assets or property over the course of their lifetime and/or as part of their estate.
If a gift exceeds the annual exclusion limit, the difference is simply subtracted from the person’s lifetime exemption limit and no taxes are owed.
Don’t Let Gift Giving Become a Tax Headache 🤯
Navigating the federal gift tax is essential for anyone with a generous spirit—or a large estate. If your gifts exceed the annual exclusion, you’ll need to report them on IRS Form 706. Better to play it safe than get an unwelcome letter from the IRS!
Need help navigating gift taxes or have other tax concerns? Contact us today and let us handle the numbers, while you handle the gift wrapping this December!