Giving or Receiving Gift Money? Know the Tax Implications


How much money can I give or receive as gift, tax-free? This is a common question tax-payers have in mind. The answer depends on how well you use the gift tax laws to your advantage. During your lifetime you can give away millions of dollars as gift money. But the tax rules concerning gift money are complicated. So before you decide to give or receive gift money, you need to understand the tax implications.

Facts about Taxable Gift Money

Money is a taxable gift. But the IRS does not consider the gift money you receive as income. So when you receive gift money, you need not claim it on your tax return or pay income tax on it. It is the giver of gift money who is taxed, and not the receiver. However, that does not mean that you need to pay tax on every cash gift you give. There are tax-free limits within which you can give up to a certain amount of gift money without having to pay tax. These limits are called gift tax exclusions.

What is the annual gift tax exclusion?

This refers to the limit on the amount you can give as gift money in a single year, without having to pay tax. Currently the annual gift tax exclusion is $15,000 per year, per person. This means you can gift this amount to as many individuals as you like, in a given year. This limit applies to cash gifts as well as the fair market value of any property you give as gift. However, if your gift money is worth more than the annual exclusion, it does not mean that you will have to pay tax. The excess amount will simply be counted against your lifetime exclusion.

What is lifetime exclusion?

The IRS allows you to give tax-free gift money up to $5.49 million in your lifetime. This also includes money, and property you may leave to your heirs. This lifetime exclusion is doubled for married taxpayers. This tax-free allowance is separate from the annual exclusion. Only the amounts exceeding the annual exclusion limit begin accruing toward the lifetime limit.

What about gift money to spouse & charitable organizations?

You can give an unlimited amount of money to your spouse as a tax-free gift, provided you’re a citizen of the US. If you’re not a US citizen, you can give up to $152,000 tax-free.

Similarly, if you give money for charity through IRS-qualified charitable organizations, the money is subject to IRS exclusion limits. But if you give it directly to the charitable organization, you can list it as a deduction on your tax return.

You may have many things to worry about, but gift tax should not be one of them. Just make sure you understand these few conditions surrounding the tax-free limit before you gift money, so that your noble act doesn’t become one you regret.