2018 Increase to The Annual Gift Tax Exclusion

November 9, 2017

The most commonly used method for tax-free giving is the annual gift tax exclusion, which allows you to make a gift of up to $14,000 (per donor, per donee, per year) on an annual basis to each donee with no gift tax and no reporting by donor(s) or donee(s). The IRS recently announced that this exclusion amount will be increased due to inflation to $15,000 effective January 1, 2018. There is no limit on the number of donees to whom you can make such gifts. If you make gifts to 10 donees in 2017, you can exclude up to $140,000 of such gifts from gift tax. In addition, if you are married you can double the amount of the exclusion to $28,000 per donee ($30,000 in 2018), because you and your spouse can combine your exemptions in a single gift from either of you.

Your annual gift tax exclusion expires at the end of each year, and does not carry over into subsequent years, so the sooner in the year you take advantage of this type of gifting, the better. If you want to make a gift that exceeds the amount of the exclusion, you can effectively double the exclusion by making one gift in one year (before December 31) and the second early in the next year (after January 1). For example, if you are married, you can make a total tax-free gift of $56,000 to any individual by making a gift of $28,000 in December, 2017 and another $30,000 in January, 2018.

As noted above, the annual exclusion is applied on a per donor, per donee, per year, basis. As a result, you can leverage the exclusion by making gifts to multiple members of the same family.
For example, you could make three $14,000 gifts to each of your son, his wife and his daughter, for a total of $42,000 in tax-free gifts in one year. This amount can be doubled to $84,000 if your spouse joins in the gifts.

Please contact us if you would like to discuss how to set up an effective lifetime gift program using the Annual Gift Exclusion.