The IRS allows individuals to give away a specific amount of assets each year, gift tax-free. The annual gift tax exclusion for 2023 is $17,000. This increase is a result of rising inflation. 

Here are a handful of common questions and answers to help you understand the ins and outs of the annual gift tax exclusion. 

Can I gift $17,000 to each of my children in one calendar year?

Yes. The gift tax exclusion amount is limited per recipient. You can gift $17,000 to as many people as you’d like tax-free. 

Does the recipient pay tax on gifted money?

Not only do you not pay gift or income tax, but the recipient doesn’t pay any gift or income tax either. 

Can my spouse and I both gift $17,000 to the same person?

Yes, you and your spouse can gift to the same recipient, allowing you to give up to $34,000 to each recipient. 

What happens if I exceed the annual gift tax limit?

Beyond the annual gift exclusion amount, the IRS allows US citizens to give away up to $12.92 million in assets over their lifetime. If a gift exceeds the annual exclusion limit, the excess gets deducted from the person’s lifetime exemption amount.  

Are there ways I can gift without limits?

When you give money directly to a charity, an educational institution for tuition, a medical provider, a political group, or your spouse, the gift limit does not apply. Be better prepared and start planning with Brickley. 

Can I gift other than cash?

Yes, and similar rules apply, but income tax considerations need to be reviewed prior to the gift.

It Pays to Know

A woman decides to buy her niece a $30,000 car as a college graduation present. This would technically exceed the annual $17,000 exclusion limit by $13,000. She wouldn’t owe additional taxes on it because she reports the gift to the IRS and deducts $13,000 from her $12.92 million lifetime exemption. Brickley or your other CPA prepares the necessary IRS form.