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When does a gift have tax consequences for the recipient?

On Behalf of | Mar 1, 2021 | Estate Planning |

Strategic gifting often plays a major role in someone’s estate or retirement planning. Diminishing the value of your assets intentionally over several years can mean that you qualify for certain state benefits or that you avoid estate taxation when you die.

It’s important for anyone using gifts as part of a broader financial plan to understand the implications of the gifts that they give to others. While you don’t face any penalties for giving away property, the recipient could wind up forced to pay taxes on the gifts.

If the total value of the gifts that you give someone in a calendar exceeds the federal exemption for taxes related to gifts, your loved one will have to claim the property and money you give them and pay taxes on the value of those gifts.

The IRS has recently increased the maximum exempt gifting amount

Currently, the maximum amount of value a person can receive in gifts in one year without paying taxes on it is $15,000. You could potentially give a loved one financial gifts up to that amount or physical property with a market value of up to $15,000 without any tax implications.

However, if you give someone gifts that exceed the exemption, they will have to file tax paperwork for those gifts and may have to pay taxes on their value as well. This is as true for fine art and jewelry as it is for a check.

Ideally, when using gifts as part of your estate planning strategy, you can limit their value so that your loved ones do not end up paying taxes on something you intend to benefit them — not cost them money. Considering possible gift tax liabilities as part of your plan is a kindness to those benefiting from your estate and personal property.