With the end of the year upon us and many people in the gift giving mood, I thought it would be a good time to discuss gift taxes. There is much confusion in the general public regarding gift taxes so I thought it would be appropriate to touch on this topic. In 2024 a gift of $18,000 or less in the calendar year has no tax implications and no reporting requirements. If a couple makes a gift from a joint account to an individual this amount is doubled so mom and dad can give $36,000 to their child with no tax ramifications. This figure can be increased even more if mom and dad are willing to gift to their son-in-law or daughter-in-law. So, the effective annual limit for 2024 for a couple to gift to another couple is $72,000. Some transfers of money are not considered a gift as well. If a husband or wife gives money to their spouse, this is not considered a gift. If an amount is paid directly to an educational or medical institution on behalf of someone else’s expenses this is also exempted from reporting or other limits and is not considered a gift. So, if a grandparent wants to pay for their grandchild’s college tuition this would not be covered by the gifting rules. The rules for reporting a gift in excess of the limits are different than the tax obligations surrounding a gift in excess of these figures. The person who gives the gift is responsible for filing a gift tax return. This return is filed on an IRS Form 709. There is no gift reporting for Ohio or Ohio cities. Form 709 is an informational return and is used to track the lifetime gifts given by one donor. The recipient has no tax consequences related to the receipt of the gift. However, if the gift is in the form of an appreciated investment the recipient assumes the giver’s cost basis and would be liable for any resulting capital gains when the asset is sold. These reportable gifts count against the unified estate tax exclusion when the person passes away. Currently the estate tax limit is $13.61 million for an individual. So, effectively any and all reportable gifts in excess of the $18,000 limit then reduce this estate tax exclusion for an individual. As a result, the vast majority of taxpayers do not pay any gift tax and most likely do not have an estate tax matter. A tax on the gifting is only incurred when the entire $13.61 million exclusion has been fully utilized. Obviously, the vast majority of taxpayers will not run into any issues related to this limit. The value that is reported on the gift tax form is the fair market value of the property at the date of transfer. For cash payments this is easily determined, while for other items it can become more problematic. An appraisal from a certified appraiser may be necessary to establish a fair market value when a readily accessible market does not exist to determine the fair market value. This may come into play if real estate such as a home or an established business is being transferred from one generation to the next. It is also important to note that there is no tax deduction for the donor or taxable income for the recipient of the gifts that we are discussing. Often a gift to a family member or relative is confused with a charitable contribution. A donation to a qualified 501c3 charitable organization would be a tax deduction for a taxpayer, whereas a gift to a family member or friend, even if they are in need would not qualify as a tax deduction. So, for most of us there are no tax-reporting or tax-paying implications of gifting to family and friends. Understanding that most of us are not impacted by these rules and that the limits are very high is important. So be generous with your gifting this upcoming holiday season, but unless you are donating to a qualified charitable organization there are no tax reporting or tax consequences to be concerned with. Paul Pahoresky is the owner of PRP & Associates. He can be reached at 440-974-1040 extension 214 or at [email protected]. Consult your tax advisor about your specific situation for additional information and guidance on these topics.