Gift Exclusion up to $18k for 2024

The gift exclusion is something that confuses a lot of taxpayers - and that’s because they don’t understand the interplay of the estate tax with it.

The estate tax (at the federal level, state estate tax thresholds vary) is currently set at $12.92M for an individual and $25.84M for a couple. When you pass away, the value of your estate above those amounts is taxed federally anywhere from 18-40%.

Now, while you’re alive, any gifts you make above the gift exclusion threshold, get counted against your estate tax exemption as well.

That means if I gave away $118k next year to someone (a single individual), I would have to report $100k of that to the federal government with my tax filing as a reduction of my estate tax threshold. Now, instead of my estate tax threshold being at $12.92M, it’s $12.82M when I die.

But, if you give to a single person not more than the exclusion amount (so for 2024, $18k) in a year, you don’t have to report that amount as a reduction of your estate tax exemption.

And this amount isn’t limited a single person, you could give 100 people $18k and you’re under the reporting threshold. Additionally, this resets each year, so even if you gave $18k to someone next year, you could again give them up to the gift exclusion the following year without triggering a reduction in your exemption.

Every year, this amount is normally adjusted for inflation, so it’s not uncommon for this amount to rise yearly.