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The new limit for Gift Tax: how much will the IRS take from me if I receive more money?

The US tax code allows you to share your wealth with loved ones but only up to a certain amount. Changes in 2018 increased the amount but not permanently.

IRS outlines tax refund filing situation

The saying goes “sharing is caring” and Uncle Sam will look the other way up to a point. Should you cross the thresholds of the Gift Tax exemption you could face a tax rate of 18 percent to 40 percent.

The Tax Cut and Jobs Act passed in 2017 increased the lifetime limit that Americans are allowed to gift in the form of money or property to family and friends for nothing in return. The changes will revert to pre-2018 levels in 2026 which will be half of the lifetime exclusion that increases with inflation, it is currently $12.06 million in 2022.

Should you surpass the annual gift tax limit you will eat away at your lifetime exclusion. Here’s a look at the amounts you can give without getting taxed.

How much can you gift tax-free?

Individual Americans will be able to dole out up to $17,000 per person that they wish destine part of their fortune to in 2023 without having to report the gift to the Internal Revenue Service. A married couple can give each of their children, or other donees, twice that amount, split between the two, and not be required to submit IRS Form 709 to disclose the gift.

The amount has increased in the past couple of years going from $15,000 for the fiscal years 2018 through 2021 to $16,000 in 2022. Any amount in excess of those limits must be reported to the IRS and the will count against your lifetime exclusion. The cap will be $12.92 million in 2023 and is adjusted for inflation each year.

The annual exclusion is per recipient and not the sum total of all that you give per year. So, in 2022, you could have given each of your children $16,000, or another family member, neighbor, you name it, and you would not necessarily be required to report the gifts to the IRS.

The limit applies to each spouse individually, so in total a married couple could give $16,000 each for a total of $32,000 to each recipient. Gifts between spouse are unlimited and generally don’t need to be declared on a tax return. The exception being if your spouse is not a US citizen.

Will the IRS tax gifts that exceed the annual exemption?

Not necessarily. First off, the person giving the gift usually pays if there are any taxes to be collected but that depends on how much is given in any given year and over the lifetime of the giver.

Let’s say that you gave your child $20,000 last year. That would be $4,000 above the annual exemption, which will need to be reported to the IRS. If you haven’t surpassed the lifetime exemption, then no worries. However, if you have been exceedingly generous you could face a tax rate between 18 percent and 40 percent.

There are other rules which you should consult and exceptions to giving money or property that can affect your annual tax declaration. You can check out the IRS Publication 525 and keep in mind that your state may have specific rules of its own, especially in relation to inheritance tax. No matter what, you should talk to a tax professional to avoid any unexpected bill from Uncle Sam or your state.


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