When someone gives another person property without getting anything in return, it’s called “gifting.” This term is often used when talking about taxes. However, gifting can be an important part of estate planning or something to be wary of if you want to avoid a hefty tax bill. If you’re hoping to avoid running afoul of the IRS, it’s critical to know IRS gifting rules, how they’ve changed, and how they apply to you.
Gifting is more than just giving someone something they might enjoy.
It’s also a way of reducing the size of an estate, which can give a corresponding reduction in estate taxes. Note that any transfer of property can be considered gifting, even if the donor does not think of the transfer as a gift. For example, the following may be considered gifts for gift tax purposes:
- Income from property that was gifted,
- Selling something for less than full value,
- Making an interest-free loan,
- Making a reduced-interests loan, and
- Cash, of course.
Whether it’s property, vehicles, jewelry, or cash, the IRS expects you to pay a gift tax on any property transferred without receiving something that’s at least equal in value. However, gift tax is only levied on property above the IRS gift tax exemption limit.
Gifting guidelines have changed.
The 2018 IRS guidelines on gifting are:
- One person may make $15,000 gifts to any number of other people.
- Two adults living in a household together may each give $15,000 for a total of $30,000 to another person.
- Any gifts valued over this limit may be subject to a 40% gift tax.
However, not all gifts or transfers will be subject to the gift tax. For example, the following transfers generally are not taxable:
- Paying a child or grandchild’s education expenses when paid directly to the educational institution;
- Paying medical bills directly, not to the individual.
- Gifts to spouses, as long as your spouse is a United States citizen.
So, what does this mean for you?
You can make gifting part of your general estate planning. Talk to your attorneys and financial advisors to make sure you stay within the legal guidelines.
Laws and taxes are complicated. The attorneys at Virtus Law, PLLC, have the tools and experience to help you achieve the best result possible. To schedule an appointment, call us at 612.888.1000. Our main office is in Minneapolis, with other offices located in Maplewood, Cambridge, Edina, Mendota Heights, and Red Wing.