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The gift tax is a federal tax imposed on certain assets transferred from one person to another. However, most taxpayers will never have to worry about paying the gift tax, which comes due only when you make more than $13.61 million in gifts over your lifetime. Here’s everything you need to know about the gift tax, how it works, and how you can avoid it.
The gift tax is a tax on the transfer of property from one person to another without the donor receiving anything—or less than the full value of the gift—in return. This can include things like cash, investments, real estate, art, and more. The IRS considers any such transfer as a gift even if the donor didn’t intend it to be one. There are, however, some exceptions:
While these exceptions exist, the gift tax is primarily designed as a tax on the wealthiest taxpayers, so there are annual exclusions and lifetime exemptions to consider.
The IRS sets both annual and lifetime exemptions for the gift tax, making it unlikely for most taxpayers to ever have to worry about paying it. In 2024, the IRS allows individuals to provide gifts of up to $18,000 per individual. If you’re married and filing a joint tax return, the threshold for both spouses is doubled to $36,000. However, exceeding that threshold doesn’t necessarily mean that you’ll be subject to the gift tax.
Instead, any amount above the $18,000 exclusion limit simply reduces your lifetime exemption amount, which is a staggering $13.61 million in 2024—note that this exemption applies to both gift and estate taxes.
For example, let’s say your child just graduated from college, and you decide to give them a car worth $20,000 as a present. The gift exceeds the annual exclusion limit by $2,000 and will reduce your lifetime limit by the same amount. If you have a sizable net worth and exhaust the full lifetime exemption amount over the course of your life, any additional gifts will be subject to the gift tax.
If you exceed the lifetime exemption threshold, additional gifts will be taxed based on the amount of the taxable gift:
Taxable Amount | Marginal Tax Rate |
---|---|
$0 — $9,999 | 18% |
$10,000 — $19,999 | 20% |
$20,000 — $39,999 | 22% |
$40,000 — $59,999 | 24% |
$60,000 — $79,999 | 26% |
$80,000 — $99,999 | 28% |
$100,000 — $149,999 | 30% |
$150,000 — $249,999 | 32% |
$250,000 — $499,999 | 34% |
$500,000 — $749,999 | 37% |
$750,000 — $999,999 | 39% |
$1 million and up | 40% |
Due to the exclusions and exemptions associated with the gift tax, it’s unlikely that most Americans will ever run into it. However, if you want to cover all your bases, here are some steps you can take to avoid having to deal with it at all:
There are other, more complex ways to avoid the gift tax, but if you’re looking for more options, it’s best to consult with a tax professional.
Generally, no, you don’t pay gift taxes when you receive a gift. However, certain gifts may be subject to other taxes. For example, if you receive a stock or other investment or even property as a gift, you may be subject to taxes when you sell the asset. Consult with a tax professional to learn more about how taxes are calculated in those instances.
The gift tax is a complex provision of the tax code, but in most cases, taxpayers don’t have to worry about it. If you do have a high net worth, however, and you’re concerned about running into the gift tax, it’s important to consult with a tax professional and an estate planning professional to ensure that you properly transfer your assets to your loved ones without creating an unnecessary tax bill.
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