The Internal Revenue Service (IRS) has increased the exemption amounts for the federal gift tax and estate tax to the highest amounts they have ever been.
Annual gift tax exclusion
Starting January 1, 2024, you can give $18,000 in a single year without being taxed. That’s up from $17,000 in 2023. Married couples will be able to give $36,000 without being taxed.
This means that a person can give up to $18,000 to as many people as they want without having to pay any taxes on the gifts. For example, a man could give $18,000 to each of his 10 grandchildren in 2024 with no gift tax implications.
Lifetime gift tax and estate tax exemption
In 2024, the federal lifetime gift tax and estate tax exemption amount will increase to $13.61 million per person. This means that individuals can transfer up to $13.61 million tax-free during their lives or at death, and married couples can transfer up to $27.22 million.
If a gift exceeds the annual limit, that doesn’t necessarily mean there will be a gift tax. The amount over the exclusion limit can be taken from the person’s lifetime exemption limit so no taxes are owed.
Let’s say you buy your granddaughter a car for $20,000 in 2024. That would be $2,000 over the $18,000 exclusion amount but you wouldn’t have to owe taxes on it. Just complete IRS Form 709 to report the gift and deduct the $2,000 from your lifetime exemption of $13.61 million.
Don’t forget that the increased federal gift and estate tax exemption amounts are set to expire on December 31, 2025, under the 2017 Tax Cuts and Jobs Act. If there aren’t any legislative changes, the exemptions will revert to $5 million per person, adjusted for inflation, starting January 1, 2026. You should think about gifting earlier in the year while the exemption amounts are higher.
