How Much Money Can Be Legally Given to a Family Member as a Gift?

In 2024, you can legally give up to $18,000 to any individual family member (or any other person) over the course of the year without having to report the gift to the IRS. This amount is known as the annual gift tax exclusion.

Understanding the Annual Gift Tax Exclusion

The annual gift tax exclusion is a crucial provision in tax law that allows individuals to transfer wealth without triggering gift tax implications for either the giver or the receiver, provided the gifts stay within a specific limit.

• Per Person, Per Year: You can gift $18,000 to as many individuals as you wish each year. For example, if you have three children, you can give each of them $18,000 annually, totaling $54,000, without any tax implications or reporting requirements.
• No Reporting Required: Gifts that fall within this annual exclusion amount do not need to be reported to the IRS by the donor. The recipient never pays tax on gifts.
• Subject to Change: It's important to note that this exclusion amount is subject to change every year due to inflation adjustments. The $18,000 limit is specific to 2024.

Gifting Above the Annual Exclusion

While the annual exclusion sets a limit for non-reportable gifts, you are legally permitted to give more money than this amount. However, gifts exceeding the annual exclusion in a calendar year require the donor to file a gift tax return (Form 709) with the IRS.

• Lifetime Gift and Estate Tax Exemption: Even if you report a gift that exceeds the annual exclusion, you typically won't owe gift tax immediately. Instead, the excess amount reduces your lifetime gift and estate tax exemption. For 2024, this combined exemption is a substantial $13.61 million per individual. This means that you can gift up to $13.61 million over your lifetime (or upon your death as part of your estate) without federal gift or estate tax becoming due.
• Reporting, Not Taxing: Filing Form 709 simply informs the IRS that you've used a portion of your lifetime exemption. Actual gift tax is only paid if your cumulative taxable gifts (those above the annual exclusion) exceed your lifetime exemption amount.

Special Gifting Rules and Strategies

Several provisions and strategies can help you manage larger gifts to family members without impacting your annual exclusion or lifetime exemption.

1. Unlimited Gifting to Your Spouse

You can gift an unlimited amount of money or assets to your spouse without incurring any gift tax, provided your spouse is a U.S. citizen. This is due to the unlimited marital deduction. If your spouse is not a U.S. citizen, a higher annual exclusion applies, but it is not unlimited.

2. Direct Payments for Qualified Education or Medical Expenses

You can pay an unlimited amount directly to an educational institution for tuition or to a medical provider for medical care on behalf of a family member, and these payments are not considered gifts for tax purposes. They do not count against your annual exclusion or lifetime exemption.

• Key Condition: The payment must be made directly to the institution or provider, not to the family member who then pays the bill.
• Exclusions: Tuition payments exclude room and board, books, or supplies. Medical payments cover diagnosis, cure, mitigation, treatment, or prevention of disease, including transportation costs for medical care.

3. Gift Splitting for Married Couples

Married couples can combine their individual annual exclusions and effectively gift double the amount to any single recipient without dipping into their lifetime exemption.

• How it Works: In 2024, a married couple can collectively give up to $36,000 ($18,000 from each spouse) to one person without reporting. If they give more, they can elect to "split" the gift on a single Form 709, meaning each spouse is treated as having made half the gift.
• Example: A married couple wants to give their child $50,000. They can use gift splitting. Each parent is considered to have given $25,000. Since $18,000 is excluded for each parent, only $7,000 from each parent ($14,000 total) counts against their respective lifetime exemptions, and a Form 709 must be filed.

Practical Examples of Gifting

Here's how these rules can apply in real-life scenarios:

• Scenario 1: Within Annual Exclusion
  • Action: You gift $10,000 to your niece in 2024.
  • Outcome: No gift tax implications. No reporting required.
• Scenario 2: Above Annual Exclusion, Below Lifetime Exemption
  • Action: You gift $25,000 to your son in 2024.
  • Outcome: $18,000 is excluded. The remaining $7,000 reduces your lifetime gift tax exemption. You must file Form 709, but no gift tax is immediately due.
• Scenario 3: Married Couple Gifting
  • Action: A married couple wants to give their grandchild $40,000 in 2024.
  • Outcome: They can elect to split the gift. Each spouse is considered to have given $20,000. Each spouse can exclude $18,000. The remaining $2,000 from each spouse (total $4,000) reduces their respective lifetime exemptions. They must file Form 709.
• Scenario 4: Paying for Education
  • Action: You pay a university directly for your grandchild's $50,000 tuition in 2024.
  • Outcome: This payment is not considered a taxable gift and does not affect your annual exclusion or lifetime exemption.

Summary of Gifting Limits (2024)

It's always recommended to consult with a qualified tax professional for personalized advice regarding significant gifts or complex financial situations.