Donna Genie breaks down U.S. gift tax rules: you can give up to $17,000 per person in 2023 tax-free, married couples can double that to the same recipient, and gifts aren't deductible on your taxes. Large gifts or estate planning needs professional advice.
$17,000 per person for 2023.
$12.92 million (current lifetime exclusion cited).
I received an email from a customer this week asking about gifting money to her daughter. She wanted to know the consequences of gifting money to her daughter so that her daughter could buy a house. This is very common and not the first time I've heard this question. I will preface this whole conversation by saying I do not work on estates and I am not an estate and accountant. So beware. If you have estate tax issues, you should be seeking the advice of an estate tax attorney or cpa. And I'd suggest you not even listen to the rest of the video. But if you have a pretty simple case and not a large estate matter, this can be a way to transfer money from a generation to another or just to anyone. The tax law says that you have an annual gift law exclusion each year. That amount for 2023 is $17,000 per person. That means that I can give someone $17,000 and they can receive that money with no tax consequences. In order to be considered a gift, they had to have done nothing for me or given me nothing in return for that money if they worked for me. That's not a gift, that's compensation. But assuming that they didn't do anything for you and you want to give money to someone, $17,000 is our magical number for each. For 2023, this number changes each year. So please reference the current year number in future years. How many times can you give $17,000? Well, that's a per person limit on an annual basis. So what happens if I give a million people $17,000 and give away $17 million? Well, you can't do that. You can do it, but you'll have taxes to pay in the form of a gift tax throughout a person's lifetime. They can gift and have money in an estate at the time that they die of whatever amount that is. The Exclusion currently is $12.92 million. The they can have in their estate and not pay any taxes. Now that's a pretty hefty amount. And that number again changes each and every year. So please reference the current numbers for current information. But in most cases, if you're nowhere near that amount, you shouldn't have any trouble gifting $17,000 per year. Now, in this scenario, if the person that sent me this email is married and they're giving money to their daughter who is unmarried, the wife can give $17,000 and the husband can give $17,000. So the daughter could receive $34,000 tax free in one year. Now, let's add another complexity to that. Let's Say that the daughter is married, the parents are married. Now, we have four exemptions per year. So technically, each person in that scenario could give $17,000 times 4, $68,000 in one year with no tax consequences. What if it's 100,000? Then you have to file a gift tax return. Do I pay tax? How much do I pay? Well, as long as your estate is still under that limitation, when you die, there'll be no tax due. If you're expected to go over that, then you would have a tax in the estate later on. That just helps the IRS keep track of what's in your estate tax exclusion. So this can get really complex really quickly. But I'm going to bring you back to the quickie answer to that original question. How much can I gift? $17,000. Do I get a deduction as the person who gives the money? No, there is no tax deduction, no tax consequence for the giver, unless, of course, you have a large estate situation. So keep that in mind. Use that to your favor. Now, in that scenario, I will also put a little asterisk that if that daughter was buying a house and getting a mortgage, make sure you clear all of this through what they're going to need with the mortgage, because that can get pretty hairy, too. So that's how gifting works in a nutshell. Please follow us on Facebook and Instagram. Please make sure to check out our blog and our website linked below. Subscribe to our YouTube channel and hit the bell to be notified when we post. You can email me at donnapyaccounting. Com.
