One of the questions I have frequently been asked as an elder law and estates attorney is “how much am I allowed to gift?” It is often phrased this way although sometimes the expression is “am I allowed to gift more than $15,000?” or for people who have not recently reviewed federal tax law “am I allowed to gift more than $10,000?” – $10,000 being the older annual exclusionary gift amount.
The first thing I do is to assure the questioner that this is America and the government cannot and does not prohibit gifting in any amount assuming it is otherwise legal. There can be tax issues relative to an idea called “basis” and there is something called the annual exclusionary gift that requires some explanation. Even there, that figure (currently $15,000) has less significance than it used to have.
So here is how it goes.
In 2019 the annual exclusionary gift is $15,000. If you give away up to but not more than $15,000 per person in a calendar year whether in cash or other property of value, then you definitely are not required to file a federal tax form known as a Form 709. More than that amount, you are expected technically to file a federal Form 709. But wait, there is more. The taxpayer, by the way, for gift tax purposes is the person who gave the gift, not the person receiving it. Note that if you give more than $15,000, this does not mean necessarily that you are subject to Federal gift tax. In fact it is extremely unlikely that you are subject to gift tax even if you should file a gift tax return for reasons that are discussed here.
Returning to the $15,000 amount, it is extremely easy to give away more than that without exceeding the annual exclusionary amount and without even technically being required to file a Form 709. Here is how.
First, obviously, you can give an unlimited amount to your spouse provided that your spouse is an American citizen. (There are different rules for non-citizens.)
Next, if you are married and want to benefit your son, for example, who is also married and has children, you and your spouse can give $15,000 each to your son (total $30,000) and also to your son’s spouse (another $30,000) and to each of your son’s children. You get the picture. If you want to compound the gifting you can simply repeat the gift for the following calendar year or years.
The federal estate and gift tax are unified and allow you to give away property above the annual exclusionary gift amount or for your heirs to inherit up to a total of $11.4 million currently without paying gift or estate taxes and this increases with inflation. So unless your combined lifetime estate giveaways technically subject to gift tax and your estate on death exceed $11.4 million, you should not have to worry about gift tax.
But wait, there is more. If you pay for another person’s medical care or tuition and follow the rules you can likely give an unlimited amount to pay for that person’s medical and educational expenses without being subject to gift tax filing or payment. You have to pay the health care provider or college, university, or even private elementary or high school at any level or nursery school directly. There are some limits regarding 529 plans but still generous provisions.
Charitable gifts also can be exempt from the reporting requirement provided that no interest is retained by the person gifting.
After hearing all of these exclusions you might wonder if there are reasons to file a gift tax return at all. One reason might be to keep track of the value of the gift at the time it is given away. If the asset has increased in value since purchase both you and the party receiving it may need to keep track of its value as of the date of the gift – a concept known as basis. On resale this is important to determine federal taxes regarding profit or loss.
For this as well as many matters, especially involving estates and taxes, be sure to check with a knowledgeable professional since every case is unique to its facts.
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.