What is the Gift Tax limit for 2024-2025?
When you think about gifting money or assets to your loved ones, you probably imagine the joy of giving, not the paperwork or taxes. But there is one thing every generous giver should know which is gift tax. Do not worry it is not as complex as it sounds, especially when you are familiar with the rules. In 2024, the IRS has set clear guidelines on how much you can gift without worrying about taxes. In this blog, I will let you know about gift tax 2024-2025, how it works, and explore ways to make the most of it.
Can claim your wife as a dependent
What is the Gift Tax?
The gift tax also known as gift tax annual exclusion is a federal tax ranging from 18% to 40% applies on the transfer of money or property to another person while receiving nothing (or less than full value) in return. It ensures that large gifts do not serve as a way to sidestep estate taxes. But the good thing is, that the IRS allows you to give a certain amount each year to any individual while avoiding this tax.
Can you claim yourself as a dependent?
What is Counts as a Gift (and What Doesn’t)?
|
Category |
Taxable |
|
Cash Gifts |
Yes |
|
Property Transfers |
Yes |
|
Stock Investments |
Yes |
|
Valuable Items (gifting collectibles, or luxury goods) |
Yes |
|
Educational Payments |
No |
|
Medical Payments |
No |
|
Charitable Donations |
No |
|
Political Contributions |
No |
|
Gift to Spouses |
No |
|
Support for Dependents |
No |
Gift Tax Limit 2024
|
Gift Type |
Gift Limit |
Details |
|
Individual gift limit |
$18,000 |
Maximum amount you can gift an individual without reporting to the IRS. |
|
Married Couples’ gift limit |
$36,000 |
Each spouse can gift $18,000 to the same individual, totaling $36,000. |
Gift Tax Limit 2025
|
Gift Type |
Gift Limit |
Details |
|
Individual gift limit |
$19,000 |
Maximum amount you can gift an individual without reporting to the IRS. |
|
Married Couples’ gift limit |
$38,000 |
Each spouse can gift $19,000 to the same individual, totaling $38,000. |
How the Gift Tax Exclusion Works?
The annual gift tax exclusion is the maximum amount set by the IRS that you may give to an individual without reporting to the IRS. If the gift limit exceeds the set amount you will need to file a gift tax return in addition to your federal tax return. For example, the gift limit for 2024 is $18,000. You can gift $18,000 to anyone without having to file a gift tax return.
What is the Lifetime Gift Tax Exemption?
The lifetime gift tax exemption is the total amount you can give away in gifts over your entire life without paying gift taxes. It is like a big tax-free bucket that applies to all the gifts you make above the yearly limit set by the IRS (called as annual gift tax exclusion).
If you give someone a gift that goes over the annual limit, the extra amount is subtracted from your lifetime exemption. One you use your lifetime exemption, you may owe gift taxes on any additional gifts you owe.
2024 and 2025 Lifetime Gift Tax Limits
|
Year |
Individual Lifetime Gift Exemption |
Married Couples Lifetime Gift Exemption |
|
2024 |
$13.61 million |
$27.22 million |
|
2025 |
$13.99 million |
$27.98 million |
What Happens if You Exceed the Gift Limit?
If your gift to an individual exceeds $18,000 in 2024, you don’t need to be worry about it as the excess amount will count toward your lifetime gift tax exemption, which is $13.61 million in 2024. Let me explain it to you with a simple example. Just remember that gifts exceeding $18,000 in 2024 must be reported to the IRS. The excess amount reduces your lifetime exemption, but you won’t owe taxes unless you exceed the $13.61 million threshold over your lifetime.
What is the Gift Tax Rate?
Gift tax rates ranges from 18% to 40%. Here are the tax brackets for the gift tax rates.
|
Taxable Amount |
Gift Tax Rate |
|
Up to $10,000 |
18% |
|
$10,001 to $20,000 |
20% |
|
$20,001 to $40,000 |
22% |
|
$40,001 to $60,000 |
24% |
|
$60,001 to $80,000 |
26% |
|
$80,001 to $100,000 |
28% |
|
$100,001 to $150,000 |
30% |
|
$150,001 to $250,000 |
32% |
|
$250,001 to $500,000 |
34% |
|
$500,001 to $750,000 |
37% |
|
$750,001 to $1,000,000 |
39% |
|
$1,000,000 and more |
40% |
Conclusion
Giving is one of the greatest joys in life, and understanding the gift tax limit ensures your generosity has no strings attached. You should keep the annual and lifetime exclusions in mind to manage your giving effectively. If you are considering larger gifts or have questions about your specific situation, consulting a tax professional is always a smart move.
At SK Financial CPA, we are here to help you with the complexities of gift taxes and create a strategy that aligns with your goals. Let our tax professionals at SK Financial CPA make tax planning simple and stress-free for you.
FAQs
1. Do gifts to my spouse count toward the limit?
No. Gifts to your spouse are typically tax-free, as long as your spouse is a U.S. citizen.
2. Is the gift tax deductible?
Gifts of cash or property are not tax deductible. Charitable donations are generally tax-deductible.
3. Who pays the gift tax?
The person who gifts that is the giver, typically pays the gift tax.
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