Gift Tax

Gift tax is a federal tax on the transfer of money or property to another person while receiving nothing (or less than full value) in return. Most gifts are not taxed due to generous exclusions.

Annual Gift Exclusion (2024):

• $18,000 per recipient - No tax, no reporting
• Married couples: $36,000 per recipient (gift splitting)
• Unlimited recipients allowed
• Resets every calendar year

Lifetime Gift Exemption:

• $13.61 million (2024) - Same as estate tax exemption
• Gifts over annual exclusion reduce this lifetime amount
• Unified with estate tax (use it now or at death)

How Gift Tax Works:

Gift Amount	Result
≤$18,000	No tax, no reporting
>$18,000	File Form 709, uses lifetime exemption
Over lifetime exemption	40% gift tax owed

Gifts NOT Subject to Gift Tax:

• Tuition paid directly to educational institution
• Medical expenses paid directly to provider
• Gifts to spouse (unlimited marital deduction)
• Gifts to qualified charities
• Gifts to political organizations

Example - Strategic Gifting: Grandparents with 4 grandchildren:

• Each grandparent gives $18,000 to each grandchild
• Total: 2 × 4 × $18,000 = $144,000/year
• No gift tax, no reporting required
• Over 10 years: $1.44 million transferred tax-free

Form 709 Requirements: Must file if you give more than $18,000 to any one person in a year:

• Due April 15 (with income tax)
• Reports gift but usually no tax due
• Tracks lifetime exemption usage

Common Gift Tax Strategies:

1. Annual exclusion gifts - $18k per person per year
2. 529 plan superfunding - 5 years of gifts at once ($90k)
3. Direct education/medical payments - Unlimited
4. Grantor Retained Annuity Trusts (GRATs) - Transfer appreciation
5. Family loans - Must charge AFR interest