The Basics of the Gift Tax Exclusion


Nothing says, “I love you” like cold, hard cash. If you want to give your child or grandchild a cash gift before the end of the year, it helps to know a little bit about the gift tax exclusion, and how to use it to your tax advantage. Here are some of the basics of the gift tax exclusion:

  • Grantors pay the gift tax.
  • You seldom owe gift taxes, though, because every person gets a credit to exempt them for up to $1 million lifetime taxable gifts.
  • If you keep your gifts to individuals to $13,000 or less each year, your gifts don’t count toward the $1 million lifetime exclusion.
  • If you give a gift exceeding $13,000 in a year, you have to file a gift tax return, even though you have an exemption. Use Form 709.
  • If you give $13,000 or less, you don’t have to worry about the gift tax (hence, the exclusion). You can give as many of these gifts as you want, to different individuals, as long as amount given to one person in any one calendar year, does not exceed the gift tax exclusion.
  • Your spouse can also give $13,000, making it possible for you to jointly give $26,000 to each individual.
  • You cannot carry forward unused gifts into the next year. Use the $13,000 exclusion this year, or lose it.
  • You cannot take an income tax deduction for these gifts.
  • Gifts in check format must be cashed in the calendar year for which you count them. That means your recipients will need to cash the check before Dec. 31 if you want the exclusion to apply for this tax year.
  • If you contribute to a state-sponsored 529 college savings plan for someone, you can actually give up to five years’ worth of gifts in one year, rather than be limited to $13,000. (While you won’t get a federal deduction for a 529 contribution, you might get a state deduction.)

The main advantage of using the gift tax exclusion is that it helps keep the money out of your estate and subject to estate taxes upon your passing. Plus, you get to be around to watch the recipient enjoy it.

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