It’s the holiday season, which means that many of us will soon be shopping for gifts for our friends and loved ones. While we’re in the giving state of mind, it’s a good time to discuss the annual gift tax exemption. What you spend or give away now could impact your taxes in the future.
What is the gift tax?
The federal gift tax is a tax on money, property, or property income “gifted” to another person during the gift giver’s lifetime. (Property income can be cash, stocks, real estate, or other intangible property). The gift tax does not apply to money given for tuition or medical expenses; it also excludes gifts to spouses, political organizations, and certain charitable groups. Under this law, “gifted” means that the gift giver transferred their money, property, or property income to another person without the expectation of receiving anything in return. The federal gift tax is designed to prevent taxpayers from avoiding the estate tax by gifting all of their assets during their lifetime.
Georgia does not have its own gift tax. Most states do not apply a gift tax at that level.
What is the 2019 gift tax exemption?
The 2019 federal gift tax exemption is $15,000 per person. That means an individual can give up to $15,000 in money or assets to other people without having to file a gift tax return. They can give $15,000 to as many different people as they want – there’s only a cap on the amount given, not the amount of people given to. As an example, this December 2019 a parent can give $15,000 to his or her four children, totaling $60,000. That parent would not have to file a gift tax return, and they can also give more money beginning in January 2020 because that is a new calendar year and a new timeframe for the gift tax exemption.
The annual gift tax exclusion is expected to stay at $15,000 per person for 2020. It has not been affected by the Tax Cuts and Jobs Act.
What if you gift more than $15,000?
If a person gifts more than $15,000 to another person within one calendar year, then the gift giver is subject to the federal gift tax. He or she must file an IRS Form 709, and they will typically be the one responsible for paying the gift tax. The federal gift tax rate is currently 40%; however, few people end up paying the gift tax during their lifetime. That’s because, under IRS regulations, an individual does not owe gift taxes until they have gifted $11.4M cumulatively. (Note: that is the cumulative amount for 2019, and this number could change in future years).
If you have additional questions about the gift tax or the annual gift tax exemption, please contact Brian M. Douglas & Associates at (770) 933-9009 or via our website. We are an Estate Planning, Probate, Real Estate, and Business Planning firm located in Atlanta, Georgia.