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Understanding the Gift Tax
At O1ne Mortgage, we aim to provide you with the best financial advice and services. If you have any mortgage service needs, please call us at 213-732-3074. In this article, we will break down the complexities of the gift tax to help you understand how it works and how you can manage it effectively.
What Is the Gift Tax?
The gift tax is a federal tax imposed on the transfer of property from one person to another without receiving anything, or less than the full value, in return. This can include cash, investments, real estate, art, and more. The IRS considers any such transfer as a gift, even if the donor didn’t intend it to be one.
Exceptions to the Gift Tax
- Charitable Gifts: Gifts made to charitable organizations are exempt and can be deducted on your tax returns.
- Spousal Gifts: Gifts to a U.S. citizen spouse are generally not reportable. For foreign citizen spouses, up to $185,000 can be gifted in 2024 without it counting against you.
- Educational Expense Gifts: Tuition paid directly to an eligible educational institution is not considered a gift. However, this does not apply to other educational costs like books and room and board.
- Medical Expense Gifts: Medical expenses paid directly to a healthcare provider on behalf of someone else are also exempt.
How Much Can You Gift Tax-Free?
In 2024, the IRS allows individuals to gift up to $18,000 per person annually without incurring the gift tax. For married couples filing jointly, this amount doubles to $36,000. Exceeding this limit reduces your lifetime exemption, which is $13.61 million in 2024.
How Much Is the Gift Tax Rate?
If you exceed the lifetime exemption, additional gifts will be taxed based on the amount of the taxable gift. Here are the marginal tax rates:
| Taxable Amount | Marginal Tax Rate |
|---|---|
| $0 — $9,999 | 18% |
| $10,000 — $19,999 | 20% |
| $20,000 — $39,999 | 22% |
| $40,000 — $59,999 | 24% |
| $60,000 — $79,999 | 26% |
| $80,000 — $99,999 | 28% |
| $100,000 — $149,999 | 30% |
| $150,000 — $249,999 | 32% |
| $250,000 — $499,999 | 34% |
| $500,000 — $749,999 | 37% |
| $750,000 — $999,999 | 39% |
| $1 million and up | 40% |
How to Avoid the Gift Tax
Most Americans will never have to worry about the gift tax due to the exclusions and exemptions. However, here are some steps to ensure you stay within the limits:
- Stay Under the Annual Exclusion Limit: Keep your gifts below the annual exclusion amount, which is $18,000 for 2024.
- Split the Gift: Married couples can gift up to $36,000 to an individual if both spouses agree not to gift the same person in the same year.
- Make Eligible Gifts: Charitable donations, most spousal gifts, tuition paid directly to schools, and unreimbursed medical expenses paid directly to healthcare providers are all exempt.
Do You Pay Taxes When You Receive a Gift?
Generally, you do not pay taxes when you receive a gift. However, certain gifts like stocks or property may be subject to taxes when sold. Consult a tax professional for more details.
The Bottom Line
The gift tax is a complex part of the tax code, but most taxpayers don’t need to worry about it. If you have a high net worth and are concerned about the gift tax, consult with a tax and estate planning professional to ensure your assets are transferred without unnecessary tax burdens.
For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey.
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