The annual federal gift tax exclusion allows you to give away up to $15,000 in 2020 to as many people as you wish without those gifts counting against your $11.58 million lifetime exemption. The $20,000 gifts are called taxable gifts because they exceed the $15,000 annual exclusion.

What does the gift tax exclusion mean?

The annual exclusion is the amount of money that one person may transfer to another as a gift without incurring a gift tax or affecting the unified credit. This annual gift exclusion can be transferred in the form of cash or other assets.

Who qualifies for gift exclusion?

You just cannot gift any one recipient more than $15,000 within one year. If you’re married, you and your spouse can each gift up to $15,000 to any one recipient. If you gift more than the exclusion to a recipient, you will need to file tax forms to disclose those gifts to the IRS. You may also have to pay taxes on it.

Do you have to pay gift tax on annual exclusion?

You can give the annual exclusion amount to any one person every single year and never dip into your lifetime exemption. If the father doesn’t want to pay the gift tax on the $85,000 in the year the gift is made, he can reduce his lifetime gift tax exemption by this amount.

What’s the annual gift exclusion for gift splitting?

Gift splitting allows a married couple to gift twice as much as an individual without being subject to a gift tax. For the 2020 and 2021 tax years, the annual gift exclusion is $30,000 for a couple.

Is the gift tax exemption indexed for inflation?

The federal estate and gift tax exemption is indexed for inflation to keep pace with the economy. The two taxes share the same exemption, often referred to as the unified tax credit, and it’s adjusted periodically to keep pace with inflation. The annual gift tax exclusion is $15,000 for tax years 2020 and 2021.

When does the lifetime gift tax exemption kick in?

The lifetime exemption only kicks in when you exceed this annual amount in a given year. The key words here are “per person.” If your son and his spouse want to buy a house and you want to give them $30,000 for a down payment, you can do that without paying a gift tax. You can attribute $15,000 for that year to each of them.