Gift Tax

What is gift tax, and how does it work?

Are there tax consequences from receiving a gift? Recipients of gifts are not taxed. However, there are rare situations where the person giving the gift may be taxed.

Taxpayers are given a gift tax exclusion of $15,000 per person per year. There is no limit on the number of individuals you can gift to, but you are required to file a gift tax return if the gift exceeds $15,000 to an individual per year.

Even if you are required to file a gift tax return, there likely will be no tax due. Gift tax returns are filed to keep track of how much of your lifetime exclusion has been used. Taxpayers have a lifetime exclusion of $11,400,000. Once the lifetime exclusion is exceed, then gift tax is assessed.

Gift tax works hand in hand with estate tax. Gift tax was designed to prevent taxpayers from gifting all of their assets prior to death, in an attempt to avoid estate tax.

The following recipients of gifts are not subject to gift or estate tax, therefore not included in the annual or lifetime exemption:

  • Charitable Organizations

  • Spouses (must be a US citizen)

  • Educational Expenses (paid directly to the school)

  • Medical Expenses (paid directly to the health care provider)

Long story short, a majority of Americans never have to pay gift tax. If your net worth is worth less than $11,400,000, gift or estate tax will likely not be a factor in your life.

Every scenario is different, therefore this general advice cannot be applied directly to your situation and is not intended to be tax advice. If you have concerns about gift tax, it is best practice to consult with a tax professional.