Gifting assets to family members is a thoughtful way to share your wealth. At the same time, it’s vital that you understand the tax implications. Both federal and state tax laws can affect your gift, and you may find it helpful to review these considerations.
Federal gift tax
When it comes to federal gift tax, remember to consider these key points.
- Annual exclusion: The IRS allows you to gift up to $18,000 per recipient per year without incurring federal gift tax. Married couples can combine their exclusions to gift $36,000 per recipient every year.
- Lifetime exemption: Any gifts exceeding the annual exclusion count against the lifetime exemption, which is $13.61 million per individual. You can gift up to this amount over your lifetime without paying federal gift tax.
Verify that you meet all filing requirements. If you gift more than the annual exclusion amount to one person in a year, you must file IRS Form 709 to report the gift even if you owe no tax.
New York State considerations
New York doesn’t impose a state gift tax. However, the state has its own estate tax with an exemption amount of $6.94 million for 2024. Gifts made within three years of death may be part of the decedent’s estate for tax purposes. By reducing the available exemption amount, the estate tax a person owes potentially increases.
Strategies for tax-efficient gifting
Managing your taxes requires effective planning and strategy. Here are a few things to keep in mind:
- Utilize annual exclusions: Spread your gifts over many years. As a result, recipients can take full advantage of the annual exclusion amounts.
- Gift appreciating assets: Consider gifting assets likely to appreciate in value, like stocks or real estate, and transfer future growth out of your taxable estate.
Gain significant tax advantages and reduce the size of your taxable estate by making charitable gifts.
Potential pitfalls
Large gifts may affect your eligibility for Medicaid benefits. New York has a five-year look-back period, and gifts made within five years of applying for benefits can result in penalties. Additionally, recipients of gifted assets may face capital gains tax. This depends specifically on the original purchase price when they sell the asset. It’s important to consider the potential tax implications a recipient may face.
The bigger picture: planning your gifts
Make informed decisions by understanding the tax implications of gifting assets. Thoughtful planning minimizes tax liabilities and maximizes the impact of your generosity. By considering federal and state tax laws, you can craft a gifting strategy that aligns with your financial goals and legacy plans.