November 2nd, 2017

IRS Announces Increased Gift Tax Annual Exclusion for 2018

The recent IRS announcement that the “gift tax annual exclusion” for 2018 has been increased to $15,000 (it had been $14,000 since 2013) reminds me that we sometimes hear from people saying that “the IRS says I can’t make a gift more than $14,000”.

When I hear that, I take the opportunity to explain that the amount ($14,000 or, next year, $15,000) is not a limit on what you can give. No one at IRS says you can’t give more than $15,000. What IRS rules instead say is that if you give more than $15,000 per gift recipient per year, you have to file a report telling IRS you went over the exclusion amount. That doesn’t mean that the giver or the recipient has to pay tax on the gift. It means that the giver has to report to IRS that he or she has used up some of his or her “unified credit amount” that limits the total amount of money or property that can be passed on during life or at death without federal tax. The good news is that almost no one has to be worried about the “unified credit amount” because it’s a high amount at $5.49 million per person in 2017 and $5.6 million per person in 2018.

So, think of an example of making a $50,000 gift in 2018. There’s no IRS rule against that. You would have to report to IRS that you used up $35,000 of your tax-free allowance ($50,000 minus the $15,000 exclusion), but you still have $5.565 million left over, and neither you nor the gift receiver has to pay any tax on the gift.

Sometimes making gifts is good planning, but there are also other non-tax risks and factors to consider. Your Gross McGinley estate planning attorney can answer questions and help you decide whether it’s the right thing for you. Your attorney can also explain to you how, if you’re married and if your spouse agrees, you can double up that $15,000 per recipient per year amount before it counts against your allowance.

Attorney Michael A. Henry is an experienced tax and estate planning attorney, assisting high net-worth clients in planning for the future. For more information about gift tax and other tax planning questions, contact Mike at 610.820.5450.