COREVALUATION​

Gifting Opportunities

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What is the Gift Tax?
The gift tax is a federal tax that applies when property is transferred from one person to another in the form of a gift. Property transfers are considered gifts when (1) no payment in exchange for the property, or a payment for the property is less than the its fair market value and the donor does not expect a return of the property.   Regardless of whether the transferor or the transferee considers it a gift, the IRS considers it a gift if it meets the descriptions above.  When a transfer meets the IRS definition of a gift,  gift tax return will be required to be filed and pay a gift tax. 

Lifetime Federal Exemption Amount

While there have been dramatic changes in Estate tax laws over the last 20 years, more estate tax reform is highly probable. Under the current tax laws, he amount which can pass free of federal estate, gift and generation-skipping taxes - also commonly known as the federal exemption amount. has increased in 2024 from $12.92 million to $13.61 million per person.  Unmarried individuals have a maximum exemption of $13.61 million, while  married couples have a combined exemption of $27.22 million.

Annual Gifts Exclusion 

The annual exclusion from gift tax --  the amount that may be gifted annually to individuals without incurring any taxes) increased from $17,000 in 2023 to $18,000 per recipient for 2024; married couples may  gift up to $36,000 per year per recipient without triggering any reduction of their combined lifetime federal exemption amount.

529 College Savings Account

A taxpayer can gift up to five years of annual exclusion to create a 529 College Savings Account without utilizing any their life time exemptions. Taking advantage of this rule, a single person could fund a college education account with $90,000 on behalf of a child or grandchild, and a married couple could fund an account with $180,000.  A parent can also make payments of college and medical expenses directly to the third party, while continue to make the usual annual exclusion gift of $18,000 directly to the child in the same year. 

Large gifts

Another technique is to make large taxable gifts.  The IRS has confirmed that anyone making sizeable gifts, and the exemption amount is reduced in a later year to an amount below the value of the gifts made, those gifts would be grandfathered with no tax applicable.  Unless Congress acts to make these life time exemptions permanent, after 2025 the exemption will revert to the $5.49 million (adjusted for inflation). Given the exemptions levels are expected to sunset in 2025, taxpayers should take advantage of the current exemption levels or be prepared to lose it.

Over the course of many years, these simple gifting techniques can be very effective at reducing the size of a person’s estate, and therefore reducing their future estate tax exposure.Learning to take advantage of these opportunities available under the current tax rules is always the first step in good financial housekeeping.  Consider reviewing your current estate plans and work with professional advisors on the necessary steps to take to reduce or eliminate your tax exposure.  For more information on gifting or finding the right professional advice, please contact us; we will be more than happy to help you.