As we approach the season of giving, there is even more incentive to give assets to loved ones during your lifetime, beyond the sheer joy of watching them enjoy your generosity. The IRS has announced an increase in the amount you can give to an individual during the year. This exemption, known as the annual gift exclusion, will increase to $18,000 in 2024, the highest amount ever.
What does this mean for you? If you are single, you can give up to $18,000 to as many recipients as you choose in one single year without the need for filing a gift tax return or paying any gift tax. If you are married, both you and your spouse can each gift up to $18,000 to as many people as you choose. Should you decide to gift to the same person, the recipient could receive up to $36,000 in one year, provided you both gift the maximum permitted annually.
In addition to the annual gift tax exclusion, the IRS has announced that the lifetime estate and gift tax exemption will increase to $13.61 million in 2024. These two exemptions indicate that many individuals will be able to avoid paying gift tax altogether.
For example, if you decided to gift your child $30,000 as a downpayment on a home, the first $18,000 would be free of tax due to the annual gift exemption and the remaining $12,000 would be deducted from your lifetime exemption, without any taxes owed. You would simply report the gift of $12,000 on a gift tax form and the IRS will track it and deduct it from your lifetime exemption.
However, similar to a fairytale with a “stroke of midnight” deadline, the generous lifetime estate tax exemption of $13.61 million will expire at midnight on December 31, 2025 when, barring a legislative extension, the amount will be reduced to $5.49 million. While many people may still be able to enjoy this large exemption, there are many that should consider speaking with their attorney and tax professionals to put gift plans in place to take advantage of the large exemptions while they still exist.