In 2018, the IRS increased the annual gift tax exclusion to $15,000. The exclusion will remain at $15,000 for 2019 too. What does this mean for gifts you make?
Each year, you can gift up to $15,000 per person before the gift is considered taxable and without being required to file a gift tax return (Form 709). Married couples can gift double this amount – $30,000 per person. Gifts of community property are considered as made one-half by each spouse. For gifts of separate property, couples can gift split. For example, husband can make a cash gift from his separate property of $30,000 to child. Wife can consent to gift split whereby husband and wife will be considered as each having made a gift of $15,000 to child. Note: you must file a gift tax return to split gifts with your spouse regardless of the amount.
The annual gift tax exclusion only applies to gifts of a present interest. A present interest is one in which a person has immediate access to and enjoyment of the property. Examples of annual exclusion gifts are cash, stocks, personal property (i.e. jewelry, car), “Crummey” withdrawal rights in a trust and gifts to a Section 529 plan (to now use for private elementary and high school tuition in addition to saving for higher education). A gift tax return should be filed to disclose annual exclusion gifts of closely held stock or interests in a family limited partnership. To start the three-year statute of limitations on the value of the gift, the gift and valuation process must be adequately disclosed.
Since the IRS has doubled the lifetime/estate exemption for 2018 through 2025, most individuals will not pay gift tax or have a taxable estate. The exemption is $11,400,000 in 2019. However, if you will likely owe estate taxes at your death, making annual exclusion gifts is a way to get assets out of your estate free from gift or estate taxes.