Gift Tax Rate 2023 - 2024 What Is It and Who Pays?

Those who are planning to gift should work with a tax professional to ensure that their gifting is not taxable. This is because the IRS changes the gift tax thresholds every year to accommodate inflation. It's also important to understand that gift taxes are often a burden that many Americans never pay. Here's everything you need to know about gift tax.

Unless you’ve made a gift above the exemption limit, you won’t have to pay gift tax in 2023 - 2024. However, you should consult a financial advisor to make sure that you’re making the most of your exemption and that your gifts are not taxable.

Gifts between spouses are excluded from gift tax. However, you may be subject to gift tax if you give a gift to a tax-exempt organization, such as a hospital or educational institution. If you give a gift to a non-US citizen, you won’t be able to claim a deduction for it.

The gift tax is a levy levied on a property transfer. The government imposes the tax to help pay for the cost of an estate tax. Depending on the size of the gift, the government can tax you up to 40%. While the IRS doesn’t collect taxes on most gifts, there are some exceptions. If the gift is in excess of the annual gift tax exemption, the gift may be subject to capital gains taxes when the recipient sells it.

Everything You Need To Know Abou Gift Tax

The IRS defines a “gift” as a transfer of property or income to a third party. This includes giving money, shares, jewelry, or other valuables.

A gift is taxable if it exceeds the annual tax exemption or lifetime exclusion. The giver of the gift pays the federal gift tax. The annual exclusion allows you to give gifts of up to $17,000 in 2025.

Gifts exceeding the gift tax limit are subject to the donor’s tax rate. For example, if you give a gift of more than $1,000,000, you will be required to pay a 40% tax. In most cases, you will not have to file a gift tax return.

Tax Implications of Gifting Money

Why is There a Gift Tax?

The gift tax is imposed on transfers of valuable assets. Congress imposes the gift tax to prevent wealthy families from avoiding estate taxes. The assets given away will be included in the person’s estate when the person dies.

If the assets are not used for a purpose that was intended, they can be sold, and a capital gain tax will be incurred. In addition, a gift is taxable if it exceeds the annual exclusion amount.

Who Pays Gift Tax?

The annual exclusion allows an individual to give a maximum of $17,000 per recipient during the calendar year. This increase from $16,000 in 2024 will increase to $17,000 in 2025. For example, an individual with four children can give $17,000 to each of them during the calendar year on a non-taxable basis.

A married couple can also give a total of $34,000 to any one recipient during the year. This can effectively double the annual gift exclusion. Alternatively, a husband and wife can gift a total of $175,000 to any two recipients during the year.

If you are planning to make a large gift, consult a tax professional before making any final decisions. The federal gift tax is complicated, and there are many potential pitfalls. You should work with a trusted advisor to make the most of your gifts for 2024.

The IRS announced the official gift and estate exclusion amounts for 2025. The gift tax exemption is currently $12,920,000 but is expected to drop to $7 million in 2025. The exemption level will then revert to the prior law in 2026. The amount of the exemption will be indexed for inflation.

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