I'm giving my daughter money for a home. Will that open the door to a high gift tax?
Q. I want to give our daughter the funds to renovate their home. Interest rates are so high it would be a shame to borrow at those rates and I have more than enough to last me. I understand that if I gift more than the limit ($15,000?) there is a tax. How much would the tax be? — Chuck in Viera
A. Chuck, that’s very generous of you. I’m sure your daughter will appreciate it. With proper planning you can gift a large sum and not cut a check to Uncle Sam for gift taxes.
Gift taxes must be considered when gifting to a non-spouse or non-charitable recipient. Spouses who are U.S. citizens may transfer assets between them free of tax. Donations to charity have no gift tax limits but limits do apply to income tax deductions.
For a gift to your daughter, the gift tax can apply if it exceeds the “annual gift tax exclusion.” For 2023, the exclusion is $17,000. This limit is indexed to inflation and will be $18,000 in 2024.
The exclusion of $17,000 of assets is per person, per year. Your question says “our daughter” and “their house.” That suggests both you and your daughter are married or have significant others. If that is the case, your spouse is also able to gift $17,000 to your daughter in 2023. Between the two of you, your daughter can receive $34,000 with no gift taxes.
If your daughter is married or has a significant other, it gets better. Both you and your spouse can give her spouse or significant other $17,000 each. That’s another $34,000 and makes the total gift tax free transfer $68,000 by year end.
More: I've heard donating from an IRA can be better than writing a check: What are my options?
Remember, the exclusion is an annual exclusion per person, per year. After Jan. 1, you can do the same thing for up to $18,000 per gift or $72,000 total, couple to couple. If your daughter is single you could give her $17,000 each this year and $18,000 each after Jan. 1 free of gift taxes.
However, even if the full amount can’t be covered through annual exclusions, you may avoid gift taxes by filing Form 709 and using some of your lifetime “unified credit.” For 2023, the unified credit equates to $12,920,000 of assets. Each person can gift up to that amount or pass it as an estate tax free inheritance when they die.
For instance, say you want to make a large gift for which $30,000 could not be covered using annual exclusions. Assuming you have not used any of your credit, you could gift the additional $30,000 and would still have $12,890,000 that could be left to non-spouse, non-charitable heirs or gifted during your lifetime free of estate or gift tax.
Your spouse also has $12,920,000 available. The lifetime exemption rises to $13,610,000 in 2024 so even if you use $30,000 this year you would still have $13,580,000 of exemption left for transfers. However, you should note that without Congressional action, the unified credit is scheduled to be reduced in 2026 when the tax provisions expire to revert to the prior scale. Estimates put the 2026 exempted amount at around $7 million per person. Families with significant assets and the desire to keep estate and gift taxes to a minimum should consider gifting techniques that take advantage of the current higher exemption amounts.
Bottom line, Chuck, is with some planning and proper accounting, gifting larger amounts without paying gift taxes is easily done for most Americans under current law. You should consult with your attorney and advisors before making a large gift.
Dan Moisand, CFP® is a past national president of the Financial Planning Association and has been featured as one of America’s top financial planners by at least 10 financial planning publications. He can be reached at www.moisandfitzgerald.com or (321)253-5400 ext 101
This article originally appeared on Florida Today: Is giving my daughter money for a home opening the door to a big tax?
