Gifting and gift splitting rules explained! (2024 version)
Curious about gifting money to your kids, your parents, or anyone, and the rules around it? In 2024, the gifting limit is $18,000 per person. But if you're married, you can give up to $36,000 through gift splitting. Want to give even more than that?
We cover all aspects of gifting, gifting limits, and gift splitting in this short video!
Transcript:
Let's talk about gifting and gift splitting. I'm Chris Kaminski, co-founder and partner here with Consilio Wealth, where we specialize in working with tech professionals at Amazon, Microsoft, Meta, and Google.
Okay, top things to know about gifting and gift splitting. So, you may have heard of the ability to give to anyone, typically say your kids, your parents, your siblings, up to $18,000 a year. That's the new amount here in 2024. And you can split that gift with your spouse, which allows you to double it. So $36,000 can be given to anyone you want and there is no tax on that. But there's some interesting rules above and beyond that that you might want to know about. First of all, if you give above that or around that number, there are some pretty hefty gift tax rates, and if you're curious about this, just Google it and you'll find a table.
Gift tax rates range from 18% to 40% at the higher end. And it's important to know how these work and where these might apply. The good news is for the majority of people, you won't be paying these gift tax rates. And that's because $18,000 is the annual limit. And like I said earlier, you can give $18,000 to say your son and your spouse can give $18,000 to your son, so a total of $36,000, and ultimately that would be a tax-free gift.
In addition to that, there's something called a lifetime maximum. It's a federal exclusion amount, which in 2024 is $13.61 million per person. So essentially, if you left $13.6 million to your kids, that would be a tax-free amount at the federal estate level. You could actually give two times that amount if you were married because you would have a $13.61 million deduction and your spouse would have a $13.61 million deduction, allowing you to leave a pretty substantial estate to your kids.
Now, let's say that this year you gave $136,000 to your daughter. In that example, assuming you were married, $18,000 plus $18,000 through gift splitting with you and your spouse would be tax-free and gift tax-free. That leaves $100,000 left, which actually also would be tax-free, you would just take that against your lifetime exemption amount, which is that $13.61 million number.
In order to do all this, you need to file a form 709. A form 709 allows you to not only track gifts, it also allows you to track gift splitting, and gift splitting is simply the process of your spouse consenting to splitting that gift with you. Again, this is important if you gave, say, $36,000, that $36,000 couldn't technically come directly from you, you would want your spouse to, assuming they agree, consent to split that gift with you so that it is actually 18 coming from you and 18 coming from them.
It's also worth noting that 529 plans have a special rule that allow you to fund five full years of gifting in one single year, and that amount would not go against your lifetime exemption amount. So, the math work says $18,000 is the max you can put in this year times five years, that's $90,000. Your spouse can do the same.
So, you could actually put $180,000 into a 529 plan for one of your kids, $180,000 in a 529 plan for another one of your kids, and $18 ,000 into a 529 plan for your third kid, all of which would be tax-free and gift tax-free. Again, you just need to file a form 709 that not only elects gift splitting between you and your spouse, but it essentially itemizes that five-year gift over those five years.
Keep in mind the only way to split gifts is you have to be legally married. You also have to be a U.S. citizen in order to legally split gifts. And once again, filling out a form 709 might be a little bit confusing. This is another area where working with a qualified CPA or tax professional might be valuable to you to make sure that you've appropriately addressed a paper trail on how you've gifted. This is probably a not so audited item by the IRS, but if you say max funded 529 plans with the five-year rule and then had a lot of money in that plan, the IRS could ask you questions around, how did you get this amount of money in the 529 plan? And you would want to show them on your tax return, the form 709 and exactly the paper trail with how you put money in those plans as an example.
So, to make things simple for you later on, in the event of an audit or if anything were to come up, definitely keep this paper trail on your tax return. Curious how to fill out a form 709? We'll talk about that next.
