Gift Tax Exclusions For 2024

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Monetary gifts are one excellent way to express appreciation and love to a family member. But before you write them a check, you must consider the tax implications of giving someone a substantial amount of money.

May 8, 2024
Author: NCH

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While giving gifts is a great, heartfelt gesture, you must understand how gift taxes work. This way, you can avoid inadvertently creating a tax burden for yourself or your loved one. 

Below, we’ve created a comprehensive guide on the 2024 gift tax exclusions. Read to avoid any potential tax pitfalls on your next gift. 

What is the Gift Tax?

The gift tax is a federal levy imposed on substantial transfers of money or real estate property where the gift giver receives nothing in return. The Internal Revenue Service (IRS) created this tax type to ensure donors and recipients honor their tax liabilities. 

Every year, the (IRS) limits the amount of gifts an individual taxpayer can transfer to someone. If the gift exceeds the IRS threshold, the gift giver must report it to the IRS using Form 709. 

Gift vs. Non-gift

According to the IRS, a gift is anything of value directly or indirectly transferred from one person to another. Examples of this include: 

  • Cash
  • Securities, such as stocks and bonds
  • Real estate and vehicles 
  • Art

Conversely, the following transactions are classified as non-gifts.

  • Educational expenses for someone else
  • Medical expenses for someone else
  • Gifts to a spouse
  • Gifts and donations to political organizations. 

Understanding the difference between gifts and non-gifts will help you identify your tax liabilities. 

Gift Tax Exclusions for 2024

Gift tax exclusions determine how much can be gifted tax-free in 2024. It has two key provisions: annual and lifetime exclusions. 

Annual Gift Tax Exclusions

The annual gift tax exclusion limits the number of tax-free gifts you can give in one year. The IRS adjusts the threshold each year to account for inflation. For 2024, individual taxpayers can give away a maximum of $18,000 in gifts. 

Meanwhile, married couples will each have an $18,000 limit, bringing their total threshold to $36,000.

Lifetime Gift Tax Exclusions

You also have lifetime exclusions. Any amount you give over the annual limit will be subtracted from your lifetime limit. Once you’ve reached your lifetime limit, you must start paying gift taxes. 

Think of your annual and lifetime gift tax exclusions as cups. Every time you fill your annual cup, the excess goes to your lifetime cup. 

For 2024, the lifetime gift tax exclusion for individuals is $13.61 million. This threshold is enough to protect most people from gift taxes.

Changes in Exclusions

Gift tax exclusions are expected to significantly reduce by 2026 following the 2017 Tax Cuts and Jobs Act (TCJA) expiration.

The TCJA, enacted by former President Trump, doubled the annual and lifetime gift tax exclusions in 2018. But now that the law is about to expire, gift tax limits are slated to return to their pre-TCJA levels, which experts estimate to be around $7 million for individuals and $14 million for married couples. 

How to Compute Gift Taxes

The rates for gift taxes are marginal, similar to that of federal income taxes. They range from 18% to 40%, depending on the value of the gift. 

The more valuable the gift is, the bigger the tax bill. In cases where the gift’s value is difficult to identify, the IRS recommends using the asset’s fair market value. 

Four Gifting Strategies to Try

Aside from keeping your gifts below the 2024 tax exclusion, there are plenty of other strategies you can use to minimize your tax liabilities:

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Split your gifts

Married couples who file joint tax returns can maximize their gift tax exclusions by splitting gifts. 

As mentioned, married couples each get a $18,000 annual limit and a $13.61 million lifetime exclusion. This setup effectively doubles how much tax-free gifts they can make in one year.

So, instead of following the annual gift tax exclusions for 2024, you and your spouse can strategically split gifts among yourselves. This strategy will allow them to make the most of their exclusions without triggering any tax liability. 

Take advantage of non-gifts

If you want to pay for a loved one’s medical expenses or tuition fees, don’t give the money directly to them. Instead, consider paying the institution itself. 

This way, the IRS will consider it a non-gift and won’t be included in your annual gift tax exclusion limit. 

Structure your gifts

Another excellent strategy to minimize gift taxes is structuring your gift. If you want to give monetary gifts to your parents, do it annually to maximize your annual and lifetime gift tax exclusions. 

Use trusts

Trusts are versatile tools typically used in estate planning. But they can also be useful when gifting assets to loved ones. 

They allow you to distribute assets according to your wishes. You can set them up so the assets are distributed to your beneficiaries over time. 

In addition, you can indicate specific conditions that must be met before your beneficiaries can receive their inheritance. This strategy is especially useful in cases where the beneficiaries are minors. 

We recommend working with an estate planner to minimize tax liabilities if you want to create a trust.

Make the Most Out of Your Gift Tax Exclusions

In retrospect, gift taxes are not as scary as they seem. These federal levies are structured so that only a handful of people pay for them. Moreover, you can use plenty of strategies to minimize their impact on your finances.

But to effectively reduce their burden, it would be better to consult a tax advisor from a well-known provider like NCH. 

NCH’s team of tax advisors will help you navigate the complex world of gift taxes. They will help you understand the exemptions and exclusions available to you, ensuring you make the most of them. 

In addition, they can also assist you in developing a tax-efficient gifting strategy, tailored to your specific financial needs and goals. 

To learn more about our services, visit our website here or call us at 1-800-508-1729 to schedule a consultation with one of our experienced tax advisors.

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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