Any transfer to an individual, either directly or indirectly, where full value is not received in return is considered a gift. The gift giver is generally responsible for paying any gift tax. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule, including an “annual exclusion amount”. The annual exclusion for 2018 is $15,000.00 and applies to gifts per recipient. In other words, if you give each of your children $15,000.00 in 2018, the annual exclusion applies to each gift. You could also give $15,000.00 to a child, and another $15,000.00 to that child’s spouse without incurring a gift tax. For married couples who wish to give gifts, the annual exclusion amount doubles to $30,000.00 per recipient.
As long as annual gifts are below the annual exclusions, no gift tax return is necessary. However, gifts over the annual exclusion amount must be reported on IRS Form 709 – United States Gift (and Generation-Skipping Transfer) Tax Return (herein “Gift Tax Return”). Even if you have made a taxable gift and are required to file a Form 709 many times no actual gift tax is owed. Every taxpayer has a lifetime exemption from gift and estate tax — $11.2 million in 2018 — and even after you use up your $15,000.00 annual exclusion per recipient and any other provisions that apply, any remaining gift amount applies against the higher lifetime exemption amount.
For example, say you make a gift of $115,000.00 to someone this year. The first $15,000.00 is covered under the annual exclusion amount, leaving $100,000.00 remaining as a taxable gift. No tax will be due, though, because that $100,000.00 will count against the $11.2 million lifetime exclusion amount. At your death, that $100,000.00 will be added to the value of your taxable estate, and if it’s above the then-applicable lifetime exclusion, then you could have estate tax liability.
The Bottom Line: Gifts over the annual exclusion amount require the filing of a Form 709 Gift Tax Return, even though it is unlikely any actual gift tax will be owed.
DISCLAIMER: Blog posts are intended for educational purposes only and are not a substitute for legal advice. No comments or responses will create an attorney-client relationship and will not be protected under the attorney-client privilege. Consult a licensed estate planning attorney for your estate planning needs.
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