What Tax Consequences Are There for Gifting?

Very common questions arise during estate planning when people are trying to be generous,  “How much can I gift?” and “What tax consequences are their for gifting?”  There are more details in the complete answer, as reported in The Mercury’s article, “Can I gift more than $15,000?” You can gift as much as you wish, to whomever you wish, but you should know the tax implications of being generous.

A total of $10,000 used to be the annual exclusionary gift amount, which is now $15,000. However, that figure has less significance than it used to have.

In 2019, the annual exclusionary gift limit is $15,000. If you give away up to but no more than $15,000 in a calendar year to one or more individuals, whether that gift is in cash or any property of value, you don’t have to file the federal tax form, known as Form 709. If you gift more than that amount, you need to file that form.

However, the taxpayer for a gift tax form is the person who gives the gift, and not the person receiving the gift.

If you gift more than $15,000, it doesn’t necessarily mean that you have to pay a Federal gift tax. It’s actually unlikely, even if you have to file the form.

Here’s another point: it’s actually pretty easy to give away more than $15,000 and not have to exceed the annual exclusionary amount, and even technically being required to file a Form 709. How is that possible?

You are permitted to gift an unlimited amount to your spouse, as long as your spouse is an American citizen. The rules are different for non-citizens.

If you are married and want to help out a child who is also married with children, you and your spouse may gift $15,000 each to your son (there’s $30,000) and also to your son’s spouse (another $30,000) and to each of your son’s children, however many grandchildren you may have. If you want to compound your gifting, you can make that same gift every year.

The federal estate and gift tax are “unified.” This allows you to give away any property above the annual exclusionary gift amount or for your heirs to inherit a total of $11.4 million currently, without paying gift or estate taxes. Unless your combined lifetime estate giveaways are subject to gift tax and your estate on death is valued at more than $11.4 million, there’s no need to worry about that gift tax.

There are other ways to be generous. If you pay for someone else’s medical care (and pay directly to the medical care provider, not to the person), or for someone else’s college tuition (pay directly to the college and not to the person), you can give an unlimited amount to that person, without having to file a gift tax form or making a gift tax payment.

Charitable gifts are also exempt from the reporting requirement, providing that no interest in the gifted assets is retained by the person gifting.

There are several reasons why you might want to file a gift tax return. One might be to keep track of the value of the gift at the time it was given. If the asset has increased in value since the purchase, both you and the party receiving it may need to track its value, as of the date of the gift. This is the concept known as basis. If the person sells the gift, this will be necessary to determine federal taxes regarding profit or losses.

An experienced estate planning attorney will be able to help determine how gifting can fit in with your overall estate plan. Every situation is unique, and you want to be sure that your gifting strategy fits in with creating a legacy and tax planning.

Reference: The Mercury (June 26, 2019) “Can I gift more than $15,000?”