Annual & Life Time Gift Tax Exemption Simplified !


lifetime gift taxLet me start with very basic question – what is a gift tax ?  26 U.S. Code Chapter 12 – GIFT TAX deals with all aspects of gifts and its taxation under Internal Revenue Code and it basically says that  if you  gift money or transfer property to another person without any consideration in return, you will have to pay tax on the amount of gift . But , the imposition of tax on such gifts is only if the amount of gift is more than the two limits set under the law – annual gift tax exemption limit of $ 15,000 and lifetime gift tax exemption limit of $11.4 million. 

How the annual gift tax exclusion works

Gifts that are eligible for the annual $15,000 exclusion apply only to gifts of present interest, meaning that the receiver can enjoy and use the property, and income, now. Gifts of future interests — meaning the receiver’s use of the property will not begin until some future date – do not qualify. Examples of future interests include reversions, remainders, and other similar interests

  1. You can give up to $15,000 to someone in a year.If you give more than $15,000 in cash or assets (for example, stocks, land, a new car) in a year to any one person, you need to file a gift tax return.
  2. The annual gift tax exclusion is per person basis which means that you can give upto $15,000 to more than one persons. Say , you gave $14,000 to ten persons in a year. You need not file gift tax return.
  3. Since the annual gift tax exemption is allowed per person wise , a married couple can give away a combined $30,000 a year without any need to file a gift tax return

What is lifetime gift tax exclusion and how it works?

The annual gift tax exemption amount means that you can donate up to $15,000 per year to as many individuals as you want without filing a gift tax return. You can exclude that $15,000 from a gift tax return. However, if you give anyone more than $15,000 in a year , you need to report gifts over the annual exclusion amount on a gift tax return (IRS Form 709) but need not pay any tax on the excess amount of gift , if the total gift given till that year does not cross the lifetime gift tax exclusion limit

The lifetime gift tax exemption limit is set considerably high at $ 11.4 million for the tax year 2019 ( lifetime gift tax exemption 2018was at $11.18 million) . Further , exclusion limit of  $11.4 million is set per person which means  married couples can exclude upto $ 22.8 million of  lifetime gifts.

What is the gift tax rate?

The gift tax rates range from 18% to 40%,  .Please  so see the instructions to IRS Form 709 for gift tax rate table and various exception .

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