How Much Money Can I Gift Without Owing Taxes?
How Much Money Can I Gift Without Owing Taxes?
Liz Smith Mon, March 27, 2023
For 2023, the annual gift tax exemption is $17,000, up from $16,000 in 2022. This means you can give up to $17,000 to as many people as you want in 2023 without any of it being subject to the federal gift tax. The gift tax is imposed by the IRS if you transfer money or property – worth more than an exempted amount – to another person without receiving at least equal value in return. This could apply to parents giving money to their children, the gifting of property such as a house or a car, or any other transfer. There is also a lifetime exclusion of $12.92 million in 2023. For help with the gift tax or any other personal finance issues you may have, consider working with a financial advisor.
Annual Gift Tax Limits
The annual gift tax exclusion of $17,000 for 2023 is the amount of money that you can give as a gift to one person, in any given year, without having to pay any gift tax. You never have to pay taxes on gifts that are equal to or less than the annual exclusion limit. So you don't need to worry about paying the gift tax on, say, a sweater you bought your nephew for Christmas.
The annual gift exclusion limit applies on a per-recipient basis. This gift tax limit isn't a cap on the total sum of all your gifts for the year. You can make individual $17,000 gifts to as many people as you want.
You just cannot gift any one recipient more than $17,000 within one year without deducting from your lifetime exemption. If you're married, you and your spouse can each gift up to $167,000 to any one recipient.
If you gift more than the exclusion to a recipient, you will need to file tax forms to disclose those gifts to the IRS. You may also have to pay taxes on it. If that's the case, the tax rates range from 18% up to 40%. However, you won't have to pay any taxes as long as you haven't hit the lifetime gift tax exemption.
Lifetime Gift Tax Limits
Most taxpayers won't ever pay gift tax because the IRS allows you to gift up to $12.92 million (as of 2023) over your lifetime without having to pay gift tax. This is the lifetime gift tax exemption, and it's up from $12.06 million in 2021.
So let's say that in 2023 you gift $217,000 to a family member. This gift is $200,000 over the annual gift exclusion, meaning you'll need to report it to the IRS. However, you won't immediately have to pay tax on that gift. Instead, the IRS deducts that $200,000 from your lifetime gift tax exemption.
So assuming you never made any other gifts over the annual exemption, your remaining lifetime exemption is now $12.72 million ($12.92 million minus $200,000). The table below breaks down this example:
Example of Lifetime Exemption Limits Gift Value $217,000 2022 Gift Tax Exemption Limit $17,000 Taxable Amount $200,000 Lifetime Gift Tax Exemption Limit $12,920,000 Remaining Lifetime Exemption Limit $12,720,000
Most taxpayers will not reach the gift tax limit of $12.92 million over their lifetimes. However, the lifetime gift tax exemption becomes important again when you die and pass on an estate.
How the Gift Tax Works
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