2018 Gift Tax Exemption Update and Guidelines
This article provides an overview of the 2018 gift tax exemption limits, including recent adjustments, rules for taxable gifts, exclusions, and filing requirements. It highlights how taxpayers can strategically plan their gifts to maximize tax benefits while complying with IRS regulations.
New Developments in Gift Tax Limits for 2018
The IRS defines gift tax as a levy on transferring ownership of assets without expecting repayment. Gifts include cash, real estate, stocks, or any property, tangible or intangible. Recipients can pay less than the property's full value or cover the gift tax on behalf of the giver if limits are exceeded.
In 2018, the IRS increased the annual gift exclusion to $15,000 per recipient, up from $14,000 in prior years, reflecting inflation adjustments. Married couples can combine their exclusions for a total of $30,000 per recipient under the split gift rule.
The increase in the gift tax exemption is part of ongoing inflation adjustments. The annual exclusion allows donors to gift up to $15,000 per person without incurring gift tax, and married couples can gift jointly up to $30,000 per recipient.
If a donor gifts an amount exceeding this limit, the excess may be deducted from their lifetime exemption, currently set at $5.6 million in 2018. For example, if you gift $1,150,000, $150,000 counts toward the annual exclusion, and the remaining $1 million reduces your estate tax exemption, which then decreases to $4.6 million.
Gifts excluded from tax include donations to qualified charities, payments directly to educational or medical institutions, spousal transfers, and certain promotional giveaways. For example, prizes won on game shows are not considered gifts for tax purposes.
Contributions to charities
Payments to educational institutions
Gifts between spouses
Medical-related gifts or donations
Filing a gift tax return is required if you exceed the annual exclusion, either individually or jointly with a spouse. Spouses must file separate returns for their respective gifts. The deadline aligns with personal income tax filings, usually April 15. In case of death in 2017, the executor should file Form 709 by April 17 or the applicable extended date.
Careful planning can optimize tax benefits, especially with systematic gifting over multiple years. For example, gifting $70,000 in one year and $75,000 in the next can maximize benefits within legal limits.
