How Much Money Can I Gift Without Owing Taxes? (2024)

How Much Money Can I Gift Without Owing Taxes? (1)

For 2023, the annual gift tax exemption is $17,000, up from $16,000 in 2022. This means you can give up to $17,000 to as many people as you want in 2023 without any of it being subject to the federal gift tax. The gift tax is imposed by the IRS if you transfer money or property – worth more than an exempted amount – to another person without receiving at least equal value in return. This could apply to parents giving money to their children, the gifting of property such as a house or a car, or any other transfer. There is also a lifetime exclusion of $12.92 million in 2023. For help with the gift tax or any other personal finance issues you may have, consider working with a financial advisor.

Annual Gift Tax Limits

The annual gift tax exclusion of $17,000 for 2023 is the amount of money that you can give as a gift to one person, in any given year, without having to pay any gift tax. You never have to pay taxes on gifts that are equal to or less than the annual exclusion limit. So you don’t need to worry about paying the gift tax on, say, a sweater you bought your nephew for Christmas.

The annual gift exclusion limit applies on a per-recipient basis. This gift tax limit isn’t a cap on the total sum of all your gifts for the year. You can make individual $17,000 gifts to as many people as you want. You just cannot gift any one recipient more than $17,000 within one year without deducting from your lifetime exemption. If you’re married, you and your spouse can each gift up to $167,000 to any one recipient.

If you gift more than the exclusion to a recipient, you will need to file tax forms to disclose those gifts to the IRS. You may also have to pay taxes on it. If that’s the case, the tax rates range from 18% up to 40%. However, you won’t have to pay any taxes as long as you haven’t hit the lifetime gift tax exemption.

Lifetime Gift Tax Limits

Most taxpayers won’t ever pay gift tax because the IRS allows you to gift up to $12.92 million (as of 2023) over your lifetime without having to pay gift tax. This is the lifetime gift tax exemption, and it’s up from $12.06 million in 2021.

So let’s say that in 2023 you gift $217,000 to a family member. This gift is $200,000 over the annual gift exclusion, meaning you’ll need to report it to the IRS. However, you won’t immediately have to pay tax on that gift. Instead, the IRS deducts that $200,000 from your lifetime gift tax exemption. So assuming you never made any other gifts over the annual exemption, your remaining lifetime exemption is now $12.72 million ($12.92 million minus $200,000). The table below breaks down this example:

Example of Lifetime Exemption Limits Gift Value $217,000 2022 Gift Tax Exemption Limit $17,000 Taxable Amount $200,000 Lifetime Gift Tax Exemption Limit $12,920,000 Remaining Lifetime Exemption Limit $12,720,000

Most taxpayers will not reach the gift tax limit of $12.92 million over their lifetimes. However, the lifetime gift tax exemption becomes important again when you die and pass on an estate.

How the Gift Tax Works

The IRS defines a gift as “any transfer to an individual, either directly or indirectly, where full consideration is not received in return.” In other words, if you write a big check, gift some investments or give a car to someone other than your spouse or dependent, you have made a gift. The IRS has a gift tax limit, both for the amount you can give each year and for what you can give over the course of your life. If you go over those limits, you will have to pay a tax on the amount of gifts that are over the limit. This tax is the gift tax.

In almost every case, the donor is responsible for paying gift tax, not the recipient. A recipient will only pay gift tax in special circumstances where he or she has elected to pay it through an agreement with the donor. Even though recipients don’t face any immediate tax consequences, they can face capital gains tax if they sell gifted property down the line.

There are two numbers to keep in mind as you think about gift tax: the annual gift tax exclusion and the lifetime gift tax exemption.

How to Calculate the Gift Tax

Just like your federal income tax, the gift tax is based on marginal tax brackets. And rates range between 18% and 40%. If you want to calculate the taxable income for gifts exceeding the annual exclusion limit, the table below breaks down the rate that you will have to pay based on the value of the gift.

20223 Gift Tax Rates Gift Value Above the Annual Exclusion Limit Rate Up to $10,000 18% $10,001 to $20,000 20% $20,001 to $40,000 22% $40,001 to $60,000 24% $60,001 to $80,000 26% $80,001 to $100,000 28% $100,001 to $150,000 30% $150,001 to $250,000 32% $250,001 to $500,000 34% $500,001 to $750,000 37% $750,001 to $1,000,000 39% More than $1,000,000 40% Gift Tax and Estate Tax

How Much Money Can I Gift Without Owing Taxes? (2)

The federal government will collect estate tax if your estate has a value of more than the federal estate tax exemption. The exemption for 2023 is $12.92 million. At the same time, the exemption for your estate may not be the full $12.92 million. You can only exempt your estate up to the amount of your remaining lifetime gift tax exemption.

So let’s say that you have lowered your lifetime exemption down to $10 million by making $2.92 million in taxable gifts over your life. The federal government would then tax any estate that you pass on to someone for all value over $10 million. In other words, the gift tax and estate tax have a single combined exclusion. Regardless of whether the gift is passed to the recipient before or after your death, it applies toward that same $12.92 million limit.

All of this means that one way to prevent taxation of any assets you pass on is to gift those assets in increments of $17,000 or less. This could take some planning on your part but it is completely legal. There are also some gifts that you never have to pay tax on.

What Gifts Are Safe From Taxes?

Taxable gifts can include cash, checks, property and even interest-free loans. It also applies to anything you sell below fair market value. For instance, if you sell your home to your non-dependent child for $175,000 when it’s worth $250,000, the $75,000 difference could be considered a gift. That surpasses the annual gift tax limit and thus is deducted from your lifetime gift tax limit.

What constitutes a gift that counts toward your gift tax limit is generally easy to understand. There are several things that the IRS doesn’t consider a gift, however. You can give unlimited gifts in these categories without facing a gift tax or having to file gift tax paperwork:

  • Anything given to a spouse who is a U.S. citizen

  • Anything given to a dependent

  • Charitable donations

  • Political donations

  • Funds paid directly to educational institutions on behalf of someone else

  • Funds paid directly to medical service or health insurance providers on behalf of someone else

There are, of course, a few exceptions to keep in mind. If your spouse is not a U.S. citizen, you can only give him or her $157,000 each year. Anything above that is subject to gift tax and counts against your lifetime limit.

Funds that cover educational expenses refer only to tuition. That does not include books, dorms or meal plans. You can skirt the gift tax by contributing to someone’s 529 college savings planwith a lump sum and then spreading it over five years for tax purposes. The IRS allows taxpayers to donate $75,000 into a 529 plan without paying tax or reducing the lifetime limit. The only caveat is that any additional gifts for the same recipient will count toward your lifetime limit.

Lastly, it’s important to note that charitable donations are not only exempt from gift tax, they may also be eligible as an itemized deduction on your individual income tax return.

How to File Your Gift Tax Return

The first step to paying gift tax is reporting your gift. Complete IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, on or before your tax filing deadline. Download the document, complete each relevant line and sign and date along the bottom. You then send the form in with the rest of your tax return.

You should complete Form 709 anytime you gift in excess of $17,000 – even if you’re within the $12.92 million lifetime limit. You’ll have to file a Form 709 each year you give a reportable gift, and each form should list all reportable gifts made during the calendar year.

If you live in Connecticutor Minnesota, you may also have to file a state gift tax return. These are the only states that have their own gift tax. In most cases, you can file a gift tax return on your own. If your transfers are large or complex, though, consider finding a financial professional.

Bottom Line

How Much Money Can I Gift Without Owing Taxes? (3)

The IRS allows every taxpayer is gift up to $17,000 to an individual recipient in one year. There is no limit to the number of recipients you can give a gift to. There is also a lifetime exemption of $12.92 million. Even if you gift someone more than $17,000 in one year, you will not have to pay any gift taxes unless you go over that lifetime gift tax limit.

You will still need to report gifts over the annual exclusion to the IRS via Form 709. The IRS will lower your remaining lifetime exclusion over time and then use that amount to determine how much of your estate you need to pay estate tax on.

Tips for Getting Through Tax Season

  • Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Any charitable donations that you make are tax deductible. As you plan for your taxes, it’s important to keep track of your potential deductions throughout the year. They could save you money if you make deductions worth more than the standard deduction.

  • One way to maximize your deductions is to use the right tax filing service. Two of the best filing services, H&R Block and TurboTax, both offer tools to help you maximize your deductions. And while both services are easy-to-use, certain taxpayers may prefer one over the other. Here’s a breakdown ofH&R Block vs. TurboTax to help you decide which is best for you.

Photo credit: ©iStock.com/donald_gruener, ©iStock.com/Goran13, ©iStock.com/YinYang

The post Gift Tax Limits: How Much Can You Gift? appeared first on SmartAsset Blog.

How Much Money Can I Gift Without Owing Taxes? (2024)

FAQs

How Much Money Can I Gift Without Owing Taxes? ›

The IRS allows every taxpayer is gift up to $17,000 to an individual recipient in one year. There is no limit to the number of recipients you can give a gift to.

How much money can I receive as a gift without paying taxes? ›

Generally, the answer to “do I have to pay taxes on a gift?” is this: the person receiving a gift typically does not have to pay gift tax. The giver, however, will generally file a gift tax return when the gift exceeds the annual gift tax exclusion amount, which is $17,000 per recipient for 2023.

How much money can be legally given to a family member as a gift? ›

A gift tax is a government tax imposed on those who give money or property to others in exchange for nothing (or less than total value). There is typically a tax-free gift limit to family members until a donation exceeds $15,000 (jumping up to $16,000 in 2022). In these instances, the IRS is usually uninvolved.

Does the recipient of a cash gift have to report it to the IRS? ›

As a general rule, the giver of the gift, and not the recipient or recipients owes this tax. So, regarding cash gift taxes and gift reporting, gift tax is generally not an issue for most people who are the recipients of gifts, even large monetary ones.

How do I gift a large sum of money to my family? ›

By setting up an irrevocable trust, donors can direct how they want the money to be managed and specify how it can be distributed and when it should be withheld, even if that happens after the donor's death.

Do you have to pay taxes on money given as a gift? ›

The annual gift tax exclusion is a set dollar amount that you may give someone without needing to report it to the IRS. The threshold is typically adjusted to account for inflation each year. The 2023 annual gift tax exclusion was $17,000, and the 2024 annual gift tax exclusion is $18,000.

Does a cash gift count as income? ›

Cash gifts aren't considered taxable income for the recipient. That's right—money given to you as a gift doesn't count as income on your taxes. Score! Everything from that $40 gift card to your favorite restaurant for your birthday to the $100 your friends pulled together when your tire blew out is yours to keep.

Who pays the gift tax, giver or receiver? ›

A federal tax called the gift tax is assessed on transfers of cash or property valued above a certain threshold. Gift tax is paid by the giver of money or assets, not the receiver.

What happens if you gift money to a family member? ›

Under IRS rules, you can gift up to $16,000 in cash and assets to someone in 2022 without any tax implications. A married couple filing jointly can give away double this amount, for a combined $32,000 per year.

Can my parents gift me $100 000? ›

Can my parents give me $100,000? Your parents can each give you up to $17,000 each in 2023 and it isn't taxed. However, any amount that exceeds that will need to be reported to the IRS by your parents and will count against their lifetime limit of $12.9 million.

What happens if you don't report a gift to the IRS? ›

If you don't file the gift tax return as you should, you could be responsible for the amount of gift tax due as well as 5% of the amount of that gift for every month that the return is past due.

What gifts must be reported to the IRS? ›

Who Must File
  • If you gave gifts to someone in 2023 totaling more than $17,000 (other than to your spouse), you probably must file Form 709. ...
  • Certain gifts, called future interests, are not subject to the $17,000 annual exclusion and you must file Form 709 even if the gift was under $17,000.

What happens if you gift more than $10,000? ›

The first $10,000 is not assessed as it's in the 'gifting-free area'. The other $10,000 is assessed as a deprived asset for five years from the date of the gift.

What is the best way to gift someone a large amount of money? ›

7 ways to give money as a gift
  1. Gift card.
  2. Cash.
  3. Check or money order.
  4. CDs or savings account transfer.
  5. Stocks.
  6. 529 contribution.
  7. Charitable contribution.
  8. Tips for giving money as a gift.
2 days ago

How does IRS know you gifted money? ›

The primary way the IRS becomes aware of gifts is when you report them on form 709. You are required to report gifts to an individual over $17,000 on this form. This is how the IRS will generally become aware of a gift. However, form 709 is not the only way the IRS will know about a gift.

What is the best way to gift money to a relative? ›

Giving cash is the easiest and most straightforward way to accomplish gifting money to family members. You can write a check, wire money, transfer between bank accounts, or even give actual cash.

How much money can you gift an adult child per year? ›

Reducing potential taxes with gifts

For smaller gifts, the IRS rules for 2024 allow any individual to gift up to $18,000 per year to any recipient without having to consider the potential impact of a taxable gift. A married couple may give up to $36,000 to any individual.

Can I give my child $100,000? ›

Can my parents give me $100,000? Your parents can each give you up to $17,000 each in 2023 and it isn't taxed. However, any amount that exceeds that will need to be reported to the IRS by your parents and will count against their lifetime limit of $12.9 million.

What triggers a gift tax return? ›

The gift tax applies to the transfer by gift of any type of property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return.

Top Articles
Latest Posts
Recommended Articles
Article information

Author: Nicola Considine CPA

Last Updated:

Views: 5798

Rating: 4.9 / 5 (69 voted)

Reviews: 84% of readers found this page helpful

Author information

Name: Nicola Considine CPA

Birthday: 1993-02-26

Address: 3809 Clinton Inlet, East Aleisha, UT 46318-2392

Phone: +2681424145499

Job: Government Technician

Hobby: Calligraphy, Lego building, Worldbuilding, Shooting, Bird watching, Shopping, Cooking

Introduction: My name is Nicola Considine CPA, I am a determined, witty, powerful, brainy, open, smiling, proud person who loves writing and wants to share my knowledge and understanding with you.