You can gift up to $18,000 per individual in 2024 without having to pay gift taxes.
Understanding the US Gift Tax and Annual Exclusion
The United States allows individuals to gift a certain amount of money each year to other people without incurring a gift tax. This is known as the annual gift tax exclusion. The amount is adjusted periodically to account for inflation.
2024 Gift Tax Exclusion
In 2024, the annual gift tax exclusion is $18,000 per recipient. This means you can gift up to $18,000 to as many different individuals as you want without having to report the gifts to the IRS or pay any gift tax.
Examples of the Gift Tax Exclusion
- Example 1: You have two children. You can gift each of them $18,000 in 2024, for a total of $36,000 in gifts, without any gift tax implications.
- Example 2: You want to help a friend with their medical expenses. You can gift them up to $18,000 in 2024 without it being subject to gift taxes.
- Example 3: A married couple can each gift $18,000 to the same individual, effectively gifting $36,000 total without incurring gift tax. This is called gift splitting.
What Happens if You Gift More Than $18,000?
If you gift more than $18,000 to one person in a year, it doesn't automatically mean you'll owe gift tax immediately. Any amount exceeding the $18,000 annual exclusion will count against your lifetime gift and estate tax exemption. The lifetime exemption is significantly higher (millions of dollars). You'll need to file a gift tax return (Form 709) to report the gift, but you likely won't owe any tax unless you've exceeded your lifetime exemption amount.
Exceptions to the Gift Tax
Certain types of transfers are not considered gifts for gift tax purposes, including:
- Direct payments for medical expenses: Paying a hospital or doctor directly for someone's medical bills.
- Direct payments for tuition: Paying an educational institution directly for someone's tuition.
- Gifts to your spouse: Generally, gifts to your US citizen spouse are unlimited and tax-free.
- Gifts to political organizations: Gifts to political organizations under section 527 of the Internal Revenue Code.
Key Takeaways
- You can gift up to $18,000 per person in 2024 without owing gift tax.
- Amounts exceeding $18,000 count against your lifetime gift and estate tax exemption.
- Certain types of payments, like tuition and medical expenses paid directly, are not considered gifts.
- Gift tax laws can be complex. Consult with a tax professional for personalized advice.
