In our preceding article, we delved into the Key Takeaways for Gift Taxes, illustrating various exceptions and deductions in specific scenarios. In this installment, we aim to provide deeper insights into the tax rate table and offer essential guidance for efficiently navigating your gift tax return.
Gift Taxes
How is gift tax calculated?
Gift tax is marginal, with rates increasing in relation to the taxable amount. Refer to the table below for an overview:
Taxable Amount | Tax Rate | Tax Owed |
$0 to $10,000 | 18% | 18% of taxable amount |
$10,001 to $20,000 | 20% | $1,800 plus 20% of the amount over $10,000 |
$20,001 to $40,000 | 22% | $3,800 plus 22% of the amount over $20,000 |
$40,001 to $60,000 | 24% | $8,200 plus 24% of the amount over $40,000 |
$60,001 to $80,000 | 26% | $13,000 plus 26% of the amount over $60,000 |
$80,001 to $100,000 | 28% | $18,200 plus 28% of the amount over $80,000 |
$100,001 to $150,000 | 30% | $23,800 plus 30% of the amount over $100,000 |
$150,001 to $250,000 | 32% | $38,800 plus 32% of the amount over $150,000 |
$250,001 to $500,000 | 34% | $70,800 plus 34% of the amount over $250,000 |
$500,001 to $750,000 | 37% | $155,800 plus 37% of the amount over $500,000 |
$750,001 to $1,000,000 | 39% | $248,300 plus 39% of the amount over $750,000 |
$1,000,000 and above | 40% | $345,800 plus 40% of the amount over $1,000,000 |
Please be aware that there are special exceptions, deductions, and requirements that apply to different cases. For complete information, refer to the IRS form 709 instructions document or consider consulting a certified tax professional.
Receiving Gifts
Generally speaking, you don’t need to report gifts that you receive, unless they are from foreign (non-US) citizens or companies. If you’re living overseas, this may be a factor to consider.
Gifts from a foreign individual or estate must be reported if the aggregate value exceeds $100,000. You will also be required to identify each gifted item in excess of $5,000.
Multiple gifts from foreign persons who are related will count as gifts from a single source.
Gifts received from a foreign corporation or partnership that exceed $17,000 (in 2023) must be reported. In some cases, the IRS may choose not to recognize reported gifts from corporations as gifts and treat them instead as income.
Receiving large foreign gifts can put you in a tricky tax position, and may require the advice of a tax professional to ensure that you are in compliance with the reporting requirements.
How do I file my gift tax return?
If your gifts exceed the annual tax exclusion limit ($17,000 in 2023, $18,000 in 2024), you must file a gift tax return (IRS Form 709) with your annual tax return on April 15.
In General, each spouse who meets the requirements must file individual gift tax returns (not jointly)
The due date can be extended along with your personal income tax return, or by filing IRS form 8892
General advice and tips for navigating the gift tax
Below are some general tips and pointers that could help you maximize your lifetime gift tax exclusion and avoid unnecessary trouble
Paying tuition or medical bills directly to the institution on behalf of another person (instead of gifting them the money to do so) will not count towards your annual exclusion limit.
Keep accurate records of all gifts you give, to ensure that you are not exceeding the annual exclusion limit for each recipient, and to keep track of how much of your lifetime exclusion you’ve used.
Selling a gift for future profit may incur capital gains taxes.
For high-value gifts of property, it’s essential to have an accurate valuation done. Underreporting the value of a gift can have significant penalties, and overestimating the value of a gift could cost you unnecessary tax!
If you’re married, you can split a gift with your spouse to avoid exceeding the annual exclusion limit
Perhaps most important of all, be aware of the upcoming 2026 change to the lifetime exclusion (from $13,610,000 in 2024 to $5,000,000). Large gifts given now will not be penalized after the change, so if you are considering gifts as a part of your long-term financial planning strategy, do it before 2026!
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