Around this time of year, I usually get some questions on gifting: How much can I gift? Will I need to pay a gift tax?
These are broad questions, so I’ll focus on the tax consequences of gifting here.
Minnesota does not have a gift tax. However, there is a federal gift tax. The following exclusions apply to the federal gift tax:
• Gifts between spouses.
• The annual gift exclusion. This allows each individual to gift up to $14,000 in 2017 and $15,000 in 2018 to any other individual. (A married couple can combine their gift exclusion.) For example, if a husband and wife have three children and want to make the maximum gift in 2017 to each child without a tax consequence, they can each give $14,000 to each child, for a total of $28,000 to each child.
• Paying the tuition or medical expenses for another individual.
• Gifts to charities and political parties.
If the gift to an individual does not fall within these exceptions, you will need to file a Form 709 gift tax return. However, this does not mean you will need to pay a gift tax. In 2017, each individual has a $5,490,000 lifetime estate and gift tax exemption amount. This amount increases to $5,600,000 in 2018. If the total of your lifetime gifts listed on the Form 709 gift tax return are under this exemption limit, you will not need to pay a gift tax.
For example, if John gifts $100,000 to his nephew in 2017, he will need to file a Form 709 gift tax return showing the $100,000 gift. The 709 return will apply the $14,000 annual exclusion and will show a gift of $86,000. This $86,000 is applied against his 2017 lifetime exemption amount of $5,490,000, leaving a remainder of $5,404,000. He will not owe any gift tax, but he will have a reduced lifetime gift and estate tax exemption amount.
If John had made previous gifts exceeding the annual exclusion amount, these would be added to the 2017 gift return. If these previous gifts plus the 2017 gift exceed $5,490,000, he would owe a gift tax on the amount exceeding the exemption limit.
Please be aware that the gift tax exemptions and exclusions discussed above do not apply to medical assistance benefits, and making gifts can cause you to be ineligible to receive medical assistance benefits. It is advisable to talk with an attorney or adviser if considering making gifts.
Balzarini is an attorney at law with Miller Legal Strategic Planning Centers, P.A. Contact him at [email protected].