HOW MUCH CAN YOU GIFT A FAMILY MEMBER IN 2023?
March 29, 2022
Updated: March 13, 2023
It is better to give than to receive. But if you give a gift above a certain amount, you might end up owing money to the Internal Revenue Service (IRS).
The federal tax code has very specific rules about how much you are allowed to give to others each year—and over the course of your lifetime—in the form of a gift. Any gifts above that amount may be subject to gift tax, which is paid by the giver. However, not every gift is subject to gift tax. There are annual exclusion amounts, a lifetime exemption amount, education and medical exclusions, and others that relieve a giver of paying federal gift taxes. Because the lifetime exemption amount is so large right now, many people won't have to pay taxes on their gifts. High net worth individuals, on the other hand, should be cautious about how giving may impact their estate tax liability when they die.
As of March 2023, the federal annual gift tax exclusion amount is $17,000.
This means that you can gift $17,000 to as many people as you want this year without having to worry about paying the federal gift tax. If you're married, your spouse can also gift $17,000 to the same people.
WHAT IS CONSIDERED A GIFT UNDER TAX LAW?
According to the IRS, a gift is a transfer of money, property, or other assets, for which the giver does not receive “full consideration.” Consideration is a contractual term that means “exchange value.” Full consideration, as the IRS defines it, means fair market value. For example, the fair market value of real estate property is the price that a buyer and seller would agree to on the open market.
Any exchange can be considered a gift and is subject to gift tax, with the following limited exceptions:
Tuition and medical costs paid for or by someone else (education exclusion and medical exclusion)
Gifts to a political organization
Gifts to your spouse (unlimited gifts can be exchanged between spouses without gift tax implications, assuming both spouses are US citizens)
Gifts to qualified charities
Gifts that do not exceed the annual exclusion amount ($17,000 in 2023) to any one recipient in any given year
WHAT ELSE SHOULD I KNOW ABOUT THE GIFT TAX?
When giving a gift to another person, here are some other tax-related points to keep in mind:
The giver usually pays the gift tax. In IRS terms, the giver is known as the donor and the receiver is known as the donee. The donee can agree to pay the gift tax instead of the donor. But, the IRS suggests that the payment be discussed with a tax professional. If the donor owes tax on the gift and doesn't pay it, the IRS could seize the gift and turn to the donee for tax payment. This usually happens only if the donor is deceased.
The annual gift tax exclusion is per recipient. The $17,000 annual gift tax exclusion is calculated per recipient. Meaning, you can gift up to $17,000 per person to an unlimited number of individuals in any given year without triggering the gift tax. For gifts given by a married couple, the annual exclusion amount is $34,000 (twice the individual exclusion).
There is a federal gift tax form. Gifts that exceed the annual exclusion amount could be subject to tax, depending on whether you have used up your lifetime exemption (see below). In any case, if your gift exceeds the annual exclusion amount you must file Form 709.
For answers to common questions about gift tax issues, see this IRS resource.
WHAT IS THE LIFETIME EXEMPTION FOR GIFT TAXES?
In addition to the annual gift tax exclusion, there is also a lifetime exemption. The lifetime exemption is the amount you can gift across all tax years before you owe gift taxes. For 2023, the lifetime exemption is $12.92 million.
Importantly, the lifetime gift tax exemption is tied to the estate tax exemption. The gift tax exemption and the estate tax exemption are effectively treated as a single amount. Thus, over the course of a taxpayer’s life, the amount of non-excluded gifts that they give counts against their lifetime exemption and could also affect their estate tax.
For example, let us say that a taxpayer has gifted $2 million over their total annual exclusions by the time they pass away in 2023. That amount counts against their lifetime exemption, reducing the balance to $10.92 million. If their estate’s value exceeds $10.92 million, estate taxes would be due on the excess amount.
It is unlikely that most individuals will exceed the lifetime gift tax exemption. And even if they do, the tax is graduated (i.e., the tax increases in proportion to the taxable amount). Overall, the gift tax rate ranges from 18% for taxable amounts up to $10,000, to 40% for taxable amounts over $1 million.
GIVE YOURSELF THE GIFT OF A MEETING WITH A TAX-MINDED ATTORNEY
You owe it to yourself to make sure that your gifts are properly accounted for, the right gift tax forms are filed, and that gifting fits into your estate planning goals. An Ohio estate planning attorney can help you understand the tax implications of gifting, including estate tax implications, as well as some of the hidden costs of a gift, including real estate taxes, transfer fees, and capital gains tax.
For guidance regarding gift taxes, estate taxes, and estate planning, contact our office at 614-389-9711 to schedule an appointment.
THERE ARE MANY ESTATE PLANNING TOOLS THAT YOU CAN USE TO PROVIDE FOR YOUR FAMILY. READ ABOUT THEM IN OUR CONSUMER'S GUIDE TO ESTATE PLANNING IN OHIO.
Greg DuPont, JD, CFP®, is a well-respected estate attorney, financial advisor, public speaker, and published author. He has been serving clients as an estate and tax planning attorney since graduating from Capital University Law School in 1992 and added a wealth component to his practice over 15 years ago. He designed his firm to be the place where finance and law meet. He has been named one of Ohio’s Top 100 lawyers and was also recently named an Ohio Super Lawyer. Greg has been featured on WTVN radio and WCMH television. He is a life-long resident of Central Ohio and resides in Hilliard with his wife, Julia, and his daughter, Sophie.