Dear Magic,
Our daughter is getting married, and she and her fiancé are buying a home. She asked if my wife and I could contribute what we would pay for a wedding ($30,000) towards a home instead, since she only wants a simple exchange of vows at the courthouse. When it comes to taxes, what are the new gift tax numbers for 2019, and are there any problems giving such a gift to a child? Thanks!
Mayer Reed
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Dear Mayer,
Congrats to your daughter and her fiancé on their upcoming nuptials!
The annual gift exclusion amount is $15,000 for 2019, as it was in 2018—up from $14,000 where it’s was stuck since 2013. In other words, in 2019 you can gift up to $15,000 per person, per year, without having to report the gift. The annual exclusion amount is indexed for inflation in the future, but can only increase in $1,000 increments.
The gift you described would be referred to as an annual exclusion gift and would not be subject to the federal gift tax at all and therefore would not use any of your lifetime exemption from gift or estate taxes. Federal gift and estate tax law allows each spouse to gift up to $15,000 to any number of individuals without incurring a federal gift tax by making the gift. A married couple together may gift up to $30,000 to any individual. Please note that there is never any gift tax (or any other type of tax) to the recipient of a gift, as the federal gift tax is a gift only on the giver of the gift.
If you choose to give more, any gift over $15,000 per person would be deducted against the federal estate tax exemption. For example, if a couple gave a child a gift in one year of $130,000 ($100,000 over the gift tax annual exclusion), this couple would need to file a gift tax return reporting the $100,000 gift, but no gift to taxes would be owed. Rather, their federal estate tax lifetime exemption would simply be reduced by $100,000, reducing it to $22.7 million for the couple instead of $22.8 million. This means that the couple will never pay any gift or a state tax on that extra hundred thousand dollar gift so long is their estate is non-taxable as of the date of their death. And the reality is that most people have estates that are nowhere near taxable. Even in 2026, when the federal estate tax lifetime exemption is scheduled to revert to the 2017 level of $5 million ($10 million for a married couple), adjusted for inflation, only a tiny fraction of Americans will have taxable estates.
Always beware of making lifetime gifts if you are over the age of 65 — read the Perils of Gifting webpage on our website at https://www.farrlawfirm.com/faqs/medicaid-the-perils-of-gifting-faq/ for more details.
Hop this is helpful,
Magic
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