2018 Gift Tax Exemption Updates and Guidelines
This article covers the 2018 updates to gift tax exemption limits, including increased annual exclusions, split gift options for couples, and rules for reporting gifts. It explains how these changes impact estate planning and tax obligations, providing essential guidance for taxpayers aiming to optimize their gifting strategies while complying with IRS regulations.
2018 Changes to Gift Tax Exemption Limits
The IRS defines gift tax as a levy on ownership transfer of assets given without expectation of repayment. A "gift" includes cash, property, stocks, or any tangible and intangible items transferred without full compensation. Recipients may pay less than the item's value or cover the gift tax on the giver’s behalf if personal exemptions are exceeded.
In 2018, the IRS increased the annual gift exclusion to $15,000 per recipient, up from $14,000 for the previous five years, adjusting for inflation. This aims to offer taxpayers more flexibility when gifting without incurring gift taxes.
Overview of 2018 Gift Tax Adjustments
The annual exclusion amount for gifts has been increased because of inflation. This means you can transfer up to $15,000 per person without triggering gift tax, a rise from the previous $14,000. This change helps individuals make larger tax-free gifts each year.
In 2018, married couples can combine their annual exclusion under the split gift rule, totaling up to $30,000 — up from $28,000 in the previous year. This allows couples to gift more jointly without tax implications.
Additionally, individuals can utilize their lifetime estate and gift tax exemption, which for 2018 is set at $5.6 million. However, using this exemption reduces the estate tax exemption available upon death. For example, gifting $1,150,000 to a family member uses part of this exemption, decreasing the estate exemption to $4.6 million.
Excluded from gift tax are transfers to qualified charities, direct educational payments, spousal transfers, and medical donations. Promotional gifts, such as prizes or giveaways, are not considered taxable gifts if no direct benefit is received by the giver.
Filing Guidelines for Gift Taxes
If you gift more than the annual exemption amount individually or with a spouse, you must file a gift tax return. Spouses must file separate returns if they gift separately. The deadline is April 15, aligned with income tax filings, or the next business day if it falls on a weekend or holiday. If the donor passed away in 2017, the estate’s executor should file Form 709 by April 17 or the extended deadline.
Strategic gifting over multiple years can maximize tax benefits while planning long-term. For example, gifting $70,000 in one year and $75,000 the next can optimize personal tax strategies.
