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Gift, Estate, and Generation-Skipping Transfer Taxes

If I Make Taxable Gifts, Will I Have To Pay Tax?

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Depending on the size of the gift, you often will not have to pay gift taxes, even if you've made a taxable gift. This is because of the Unified Credit, a credit available to reduce or wipe out any gift taxes that you owe.

After you have determined which of your gifts are taxable, compute the amount of gift tax due on your taxable gifts and apply the unified credit for that year (reduced by the amount of unified credit used in previous years) to the tax. Unless the tax is more than the available credit, no tax is due.

Example: In 2022, Gloria gave her niece, Mary, a cash gift of $8,000, paid $17,000 college tuition to the University for her friend David, and gave her son, Keith, $38,000. In 2019, the annual gift tax exemption was $16,000.

  • The gift to Mary will not be a taxable gift because the total amount of gifts to Mary that year is less than $15,000.
  • The tuition paid for David is also not a taxable gift because of the educational exclusion.
  • $23,000 of the gift to Keith ($38,000 less the $16,000 annual exclusion) is taxable. 
  • Therefore, Gloria's total taxable gifts for 2022 are $23,000. Since Gloria has never given a taxable gift before, no gift tax is due because she has the full amount of the unified credit is available to be applied.
  • While Gloria does not have to pay any gift taxes this year, the amount of her unified credit that is available in future years will be reduced by the amount of tax that would have been payable on the $22,000 portion of the gift to Keith.

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