The Gift Tax Exclusion

A Handy Tool for Passing on Wealth

As you navigate the complex world of personal finance, one important consideration is the gift tax exclusion. This often-overlooked provision in the tax code can be a powerful tool for those looking to transfer wealth to loved ones during their lifetime.

 The gift tax exclusion allows you to give away a certain amount of money each year without incurring any gift tax penalty. For the 2024 tax year, the gift tax exclusion amount is $18,000 per recipient. This means you can gift up to $18,000 to as many individuals as you'd like, and it is not considered a countable gift for federal gift tax purposes so long as it is not above that amount per recipient.

 The beauty of the gift tax exclusion is that it allows you to reduce the size of your taxable estate while simultaneously providing financial support to your family and friends. By gifting the maximum amount each year, you can gradually transfer wealth without having to worry about the gift tax.

 It's important to note that the exclusion applies per recipient, not per giver. So a married couple could collectively gift up to $36,000 per year to each of their children or grandchildren, for example. This can be a great way to help fund things like education, down payments on a home, or even just to provide a financial boost.

 Of course, there are some caveats to be aware of. Gifts in excess of the annual exclusion amount must be reported and those gifts will reduce your lifetime gift and estate tax exemption amounts. The current lifetime estate and gift tax exemption amount in 2024 is $13.61 million per individual (as of 2024), but once that threshold is reached, the gift tax kicks in. Importantly, current lifetime estate and gift tax limits are set to sunset in 2025 and the limits could be reduced substantially if congress does not act to extend the current lifetime estate and gift tax limits that are currently in place.

 Overall, the gift tax exclusion amount is a valuable tool in the estate planning arsenal. By taking advantage of this provision, you can transfer wealth in a tax-efficient manner and provide meaningful support to your loved ones. As always, it's a good idea to consult with a tax professional to ensure you're maximizing the benefits and staying compliant with all applicable rules and regulations.