January 2013

The gift tax annual exclusion amount has increased from $13,000 in 2012 to $14,000 in 2013. This is the first increase since 2009. For calendar year 2013, the first $14,000 of gifts made to any one person is not included in the total amount of taxable gifts made during that year.

The lifetime gift tax exemption and the estate tax exemption are expressed as a total amount, currently $5.25 million per person, and it is possible to use this exemption to transfer assets during life and/or at death. If you exceed the exemption limit, you or your estate will owe tax of up to 40%.  However, gifts to charity and direct payments of medical expenses and tuition are excluded from gift tax and, therefore, do not use up any of your exemption amount.  Each individual is required to file a Gift Tax Return for the years during which he or she gifted over $14,000 (made a “taxable gift”) to any one person.  It is important to note that as long as the aggregate of lifetime taxable gifts remains under the exemption amount, no tax will need to be paid with the Gift Tax Returns; the filing is simply a way for the IRS to keep track of exemption use during life.

That means you can make gifts up to $5.25 million before you have to pay any gift tax. Any exemption remaining when you die can be used as an exemption from the estate tax.

Material presented on the King & Navins, P.C. website is intended for information purposes only. It should not be construed as legal advice or the formation of an attorney-client relationship. Please consult an attorney for individual advice regarding your own personal situation.