Understanding the Federal Gift Tax Exemption – and How it Applies to You

Understanding the Federal Gift Tax Exemption

Summary: Each calendar year, a person can gift up to $14,000 in money or assets to an unlimited number of different recipients, without having to pay the federal gift tax.  If an individual gifts more than $14,000 to another person within the calendar year, he or she (the one gifting the money) is subject to the federal gift tax. Georgia does not apply a gift tax at the state level.

With 2016 quickly coming to an end, Siedentopf Law is taking a close look at the federal gift tax; namely, how clients can take advantage of the annual tax exclusion.

Federal gift taxes are taxes on money, property, or property income gifted to another person, during their lifetime.  This can include cash, stocks, real estate, and other tangible or intangible property.  For the purposes of this tax classification, “gifted” means that the person transferred the money or property to someone else, without expecting to receive anything in return.  Currently, the federal gift tax rate is 40%; however, this tax does not apply to gifts up to $14,000, per person.  In other words, every year an individual can give up to $14,000 to another person, without incurring the federal gift tax.  (Most states, including Georgia, do not apply a gift tax at the state level).

The federal gift tax is designed so that taxpayers will not avoid estate taxes by giving away everything during their lifetime.  The idea is, whether a person gives their money or property away during their lifetime or through a will or trust, that money and/or property is taxed the same way, at the same rate.  The federal gift tax does not apply to: tuition or medical expenses paid for someone else, gifts to a spouse, gifts to a political organization for its use, or gifts to certain charities.

Each calendar year, a person can gift up to $14,000 in money or assets to an unlimited number of different recipients, without having to pay the federal gift tax.  So, for example, in December 2016, each spouse can give “gift” $14,000 to their child and their child’s spouse, for a total of $56,000.  Because this is an annual exemption, those same spouses can gift money to their child in December 2016, and then, with the new calendar year, give another $14,000 to their child and child’s spouse in January 2017.

If an individual gifts more than $14,000 to another person within the calendar year, he or she (the one gifting the money) is subject to the federal gift tax, and must file IRS Form 709.  The donor is typically the one responsible for paying the gift tax.  However, very few people end up paying the federal gift tax during their lifetime, because under IRS regulations, a person does not owe federal gift taxes until he or she has gifted $5.45M, cumulatively (which is the 2016 cumulative exemption amount; this number may change in future years).  If a person has gifted more than $5.45M in assets during their lifetime, he or she is then required to file IRS Form 706.

For people interested in gifting assets under the federal gift tax exemption, or for those who need to file an IRS gift tax return – Siedentopf Law is happy to help.  You can visit our website EstateLawAtlanta.com or call us at (404) 736 – 6066.

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