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Gift, Estate, and Generation-Skipping Transfer Taxes

Which Gifts Are Taxable? (The Annual Gift Tax Exclusion and more)

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The general rule is that gifts are taxable, except:

Annual Exclusion:

  • The gifts that most people make, whether a $20 Furby or a $5,000 Rolex watch, are not taxable because of the "annual exclusion." As of 2020, gifts adding up to $15,000 each calendar year, per recipient, are excluded from the gift tax.
  • If you are married, you and your spouse can give each recipient up to $30,000 during the year with no gift tax concerns. The increase only applies to married couples. It does not apply to significant others, no matter how long the relationship. So long as you and your spouse agree to give the gift together, it doesn't matter what portion of the gift each of you pay. One spouse can pay the entire amount -- as long as both spouses agree that the gift will be treated as if it were "split" (in other words, that each gave one half of the total amount). For example: John gave each of his three children $16,000 last year. $1,000 ($16,000 minus $15,000 annual exclusion) of the gift to each child is a taxable gift. If John were married, and he and his spouse elected to use gift-splitting and make the gifts together, no tax would be due because each child receives less than $30,000 per year. 

 The Annual Exclusion helps reduce the amount of an estate subject to estate tax.

Other Exclusions from Gift Taxes: Regardless of their size, the following gifts are also generally not taxable (and are also used to reduce the amount of assets subject to estate tax):

  • Medical expenses that you pay for someone directly to a health care provider -- whether or not the person who incurred the expenses is related to you. Note that the expenses have to be paid directly to the provider. It doesn't count if you reimburse the patient, or give the patient the money to pay the bill instead of paying the provider directly.
  • Tuition expenses you pay for someone directly to an educational institution.
  • Gifts to your spouse.
  • Gifts to a political organization.
  • Gifts to charities.

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