The lifetime exclusion for 2015 is $5.43 million per individual and will continue to increase over the next
In addition to the lifetime exclusion, there is the
annual exclusion per person receiving the gifts ($14,000 for 2015). For example,
suppose a couple desires to give the maximum allowed to their two children
without reducing their lifetime exclusion. Each can give $14,000 to each
child allowing them to give away a total of $56,000.
If their children
were married, they could double the amount by giving the children's
spouses a like amount. Of course, gifts can be made in excess of the
$14,000 limit, but any amount over the $14,000 per person will reduce the
lifetime exclusion and require filing a gift tax return.
property, securities, etc., can also be given as gifts but require
qualified appraisals to determine their market value. Gifts of property,
which have appreciated in value, pass to a recipient at the giver's tax basis.
This could subject the recipient to taxes on the appreciation whenever the
recipient disposes of the property. For example, a single father gives his
child a rental property with a market value of $150,000 and no mortgage.
The father's cost to acquire the rental was $50,000 and he had taken
$15,000 in depreciation.
Therefore, the child's basis in the property
(i.e., the amount the child will use to measure any future gain or loss)
will be $35,000 ($50,000 - $15,000). At the same time, the parent's gift
will be valued at $150,000. The large difference between the father's gift
value and the child's basis should be a concern unless other tax benefits
come into play.
For example, if the child occupies the home, and after two
years qualifies for the exclusion of gain, the home can be sold with both
the father and the child escaping taxation on the disposition of the
property. The father's lifetime exemption, however, would have to be
reduced by $136,000 ($150,000 - $14,000).
The obvious benefit of making gifts during your lifetime
is to reduce your estate and minimize any inheritance (estate) taxes upon
your death. However, when contemplating gifts other than cash, it may be
prudent to contact our office to plan how to best structure a gift.