NASE Blogs

Gift Taxes

Mar 24, 2011

Q: We’d like to begin giving some of our estate away to our children.  How can we do that without paying gift taxes?

A: According to current law you can give as much as $13,000 to each of any number of individuals without paying any gift tax or being required to file a gift tax return. You can also give up to that same amount every calendar year to as many people as you wish including each of your children, your friends, or complete strangers. $13,000 is the current annual exclusion amount.

In other words, you can gift up to the current annual exclusion amount to any number of individuals every year until the $13,000 limit is changed. Check the IRS Web site for the most up-to-date information on the annual exclusion limit.  If there is a change, expect the limit to be increased.

Should you decide to make a number of $13,000 gifts you are advised to keep accurate records, or file a gift tax return (even though it's not required) in order to assure that you do not inadvertently reduce your personal federal gift tax exclusionary amount in the eyes of the IRS. 

In addition to all of the above, as of 2011, there is a $5 million per person federal gift tax exclusion.  That means that you and your wife can each give more than $13,000 to any individual up to a total for all gifts taken together of $5 million.  To clarify: Each of you can give $13,000 to any individual, and, in addition you can each give any additional amount to anyone you wish as long as the total of the gifts over $13,000 does not exceed $5 million for each of your lifetimes.  As long as total gifts made by either you or your wife over the $13,000/person/year doesn't exceed $5 million neither of you will owe any federal gift tax. 

Gifts exceeding $13,000 made to anyone require that you file a federal gift tax return along with your federal income tax return by April 15th of the year following the year in which the gifts were made because the IRS keeps records of gifts in excess of the $13,000/individual donee in order to assure that one doesn’t exceed the $5 million gift tax exclusion. 

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