gift and taxes article

Understanding the Gift Tax Law

How much can you give as a gift without paying taxes on it? As of January 2020, there have been a few important updates to the federal gift tax laws that you’ll want to know about first. Let’s take a look at them.

How much can you give away tax-free? 

For starters, you can make gifts of up to $15,000 (per person) to as many people as you wish during the 2020 calendar year and generally no gift tax will be due.* This gift-tax annual exclusion (which is periodically inflation adjusted) allows you to give away a substantial amount. For example, you could give eight grandchildren $15,000 each this year — $120,000 total — and no gift tax would be due. Your gifts can be cash, securities, or other property, and you can make the gifts to anyone, not just relatives. Please note: Factors such as unrealized appreciation, when the asset was purchased, and the ability to value the asset may all play a role in the asset you're gifting. 

Married couples who satisfy certain tax law requirements can agree to split their gifts. With gift splitting, all gifts made by either spouse to third parties during the calendar year are considered given half by one spouse and half by the other. That way, a couple's combined annual exclusion can be as much as $30,000 per recipient.

What if you exceed the limit? 

Gifts that aren't protected by the gift-tax annual exclusion generally can be protected from gift and estate tax by your unified credit. This lifetime exclusion amount is currently $11.58 million (this is also inflation adjusted).

Are there other times when the gift tax doesn't apply?

An unlimited tuition exclusion allows you to pay tuition at qualifying educational institutions. An unlimited medical exclusion allows you to pay medical providers for unreimbursed medical costs. Note that payments must be made directly to the institution and/or care provider and may be made on behalf of any individual, related or not.

Transfers to spouses generally are not subject to gift tax due to a marital deduction (exceptions apply). Similarly, gifts to charities aren't taxed in most circumstances because of a charitable deduction. 

Got a question we didn't cover? Reach out to BECU Trust Services at 206-812-5176 or schedule a complimentary consultation.  

 

*To use the gift-tax annual exclusion, the gift generally must be of a “present interest” (i.e., the gift recipient's enjoyment of the property can't be postponed until sometime in the future).

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