How Much Money You Can Gift Without Being Taxed

How Much Money You Can Gift Without Being Taxed
Published on
March 18, 2024

As of 2024, the U.S. government allows you to gift anybody $18,000 per year without incurring any gift tax. This $18,000 per year replenishes annually, and the $18,000 limit is per recipient. In theory, you could gift every human $18,000 this year and another $18,000 year after year for eternity without paying a gift tax. Oh, and more good news: the government raises the annual limit. For example, the annual gift tax allowance was $17,000 in 2023 and $16,000 in 2022. The government continually evaluates the limit and increases it as needed.

What most people do not understand, though, is that you have a second allowance to use, tax free. It is called the Lifetime Exclusion, and here is how it works.

What is the $13,610,000 Lifetime Exclusion?

As of 2024, the federal government has set the lifetime exclusion limit at $13,610,000, up from $12,920,000 in 2023. You are able to gift other people money from your lifetime exclusion, which reduces your lifetime estate tax exclusion.

Think of these funds as buckets.

Let’s say I want to give you $118,000, which is $100,000 more than my $18,000 annual gift tax limit. I pull $18,000 from my annual gift tax bucket (which replenishes each calendar year) and $100,000 from my lifetime exclusion bucket (which does not replenish but increase in limit over your lifetime).

My $18,000 bucket will replenish the next calendar year while my lifetime exclusion bucket does not. In fact, I must deduct $100,000 from my lifetime exclusion bucket so that my total allowable gifting fund is now $12,610,000.

The lifetime exclusion is used to calculate your estate tax when your wealth is passed down. If your estate is worth less than your lifetime exclusion amount, then your heirs will not pay estate tax on the inheritance. However, if your estate exceeds the lifetime exclusion limit, they will pay estate taxes at a rate between 18% and 40% on the excess amount. In essence, every time you gift money from your lifetime exclusion bucket, you are reducing the tax-free limit on your estate before you pass it on to your heirs.

Many folks believe they can only gift someone the $18,000 per year, when in reality, you have much more capital at your disposal. That is how the gift tax and lifetime exclusion are related, and both are incredible resources for those who want to help loved ones buy their next home.

Additional Gift Tax Rules and Best Practices

  • No Relationship Required: You do not need to be related to the recipient to use either of these buckets. You can gift $18,000/year to a complete stranger and you would have no gift tax. You can also gift money to a complete stranger using your lifetime exclusion bucket tax-free.
  • No Tax to the Gift Recipient: Everything we just talked about applies to the person GIVING the gift. The person RECEIVING the gift does not owe taxes on the money, either.
  • The Lifetime Exclusion increases over time: One thing to keep in mind about the lifetime exclusion bucket is that the amount changes each year. In 2024, the exclusion is $13.61mm, but it is scheduled to go up in the years ahead because it is indexed to inflation. 
  • $27,220,000 Total Exclusion for Married Couples: You can “port” over my $13.61mm to a spouse, which means a married couple could have a total joint exclusion of $27,220,000! This is why most folks don't worry about gift taxes; the exclusion limit is high and a vast majority of heirs do not pay estate taxes when they inherit an estate.
  • Additional Paperwork May be Required: When you gift within the annual limit and follow the correct steps, you do not need to report the gift to the IRS. However, if your gift exceeds this amount and falls under the lifetime exclusion allowance, a completed Gift Tax Return must be filed with the IRS. This does not result in any tax being due but rather informs them that you've taken advantage of your available exclusion allowance.
  • Use Separate Checks: Make sure the checks are written by the specific individuals who are giving the gift. For example, if mom is gifting you $17,000 and dad is gifting you another $17,000, you need one check from mom and a separate one from dad. From a mortgage underwriting perspective, we might also have to "source" these funds - so check with me before you do anything so that we can discuss the specific details of your situation and make sure this is all done properly.

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