Gifts and bequests are not typically taxable for the recipient, though there are exceptions. Inheritance tax, also known as estate tax, is levied on the estate of the deceased, not the individual inheriting. Gift tax is imposed on the donor, not the recipient, and only if the value of the gift exceeds a certain threshold. In most cases, gifts and bequests are tax-free for the recipient, providing a significant financial benefit to those inheriting assets.
Types of Gifts and Bequests
Gifts and bequests can take many forms, including:
- Cash
- Real estate
- Stocks and bonds
- Art and collectibles
- Life insurance policies
- Retirement accounts
In the United States, federal gift and estate taxes apply to transfers of property during life (gifts) and at death (bequests). The tax rates and exemptions vary depending on the type of gift or bequest and the amount transferred.
Estate and Gift Tax Thresholds
Estate and gift taxes are imposed on the transfer of property from one person to another. The estate tax is imposed on the value of a person’s property at the time of their death, while the gift tax is imposed on the value of property transferred during a person’s life.
Both the estate tax and the gift tax have a threshold amount, below which no tax is owed. For 2023, the estate tax threshold is $12.92 million, and the gift tax threshold is $17,000 per person per year.
- Estate tax: The estate tax is imposed on the value of a person’s property at the time of their death. The estate tax threshold for 2023 is $12.92 million. This means that if a person’s estate is worth less than $12.92 million, no estate tax will be owed.
- Gift tax: The gift tax is imposed on the value of property transferred during a person’s life. The gift tax threshold for 2023 is $17,000 per person per year. This means that if a person makes gifts totaling less than $17,000 to any one person in a year, no gift tax will be owed.
The estate tax and the gift tax are both progressive taxes, which means that the tax rate increases as the value of the property transferred increases.
| Taxable Amount | Estate Tax Rate | Gift Tax Rate |
|—|—|—|
| $12.92 million to $15 million | 18% | 18% |
| $15 million to $18 million | 20% | 20% |
| $18 million to $21 million | 22% | 22% |
| $21 million to $24 million | 24% | 24% |
| Over $24 million | 26% | 26% |
If you are considering making a gift or bequest, it is important to consult with a tax advisor to determine the potential tax consequences.
Federal Gift Tax Rates
The federal gift tax is a tax on the transfer of property by gift. The tax is imposed on the donor of the gift, and the amount of tax is based on the value of the gift. If you make a gift of more than $16,000 to an individual in a single year in 2023, you must file a gift tax return. You may have to pay gift tax if the total value of your gifts exceeds the annual exclusion.
The gift tax is a progressive tax, which means that the tax rate increases as the value of the gift increases. The gift tax rates for 2023 are as follows:
- 18% on gifts over $16,000 but not over $75,000
- 20% on gifts over $75,000 but not over $325,000
- 22% on gifts over $325,000 but not over $1,000,000
- 24% on gifts over $1,000,000 but not over $5,000,000
- 26% on gifts over $5,000,000 but not over $10,000,000
- 28% on gifts over $10,000,000 but not over $20,000,000
- 30% on gifts over $20,000,000
The annual exclusion for 2023 is $16,000 per donee. This means that you can give up to $16,000 to as many individuals as you want each year without having to pay gift tax. If you give more than $16,000 to an individual in a year, you must file a gift tax return and pay tax on the amount of the gift that exceeds the annual exclusion.
The lifetime exemption for the gift tax is $12,920,000 in 2023. This means that you can give up to $12,920,000 in gifts over your lifetime without having to pay gift tax. If you give more than $12,920,000 in gifts over your lifetime, you must file a gift tax return and pay tax on the amount of the gifts that exceeds the lifetime exemption.
| Gift Amount | Gift Tax Rate |
|---|---|
| $16,000 or less | 0% |
| $16,001 – $75,000 | 18% |
| $75,001 – $325,000 | 20% |
| $325,001 – $1,000,000 | 22% |
| $1,000,001 – $5,000,000 | 24% |
| $5,000,001 – $10,000,000 | 26% |
| $10,000,001 – $20,000,000 | 28% |
| Over $20,000,000 | 30% |
Are Gifts and Bequests Taxable?
Whether gifts and bequests are taxable depends on factors such as the size of the gift or bequest, the relationship between the giver and recipient, and the laws of the state or jurisdiction involved. Generally, gifts and bequests are not taxable at the federal level, but some states impose gift and estate taxes.
State Gift and Estate Taxes
The following states currently impose a gift tax:
- Connecticut
- Delaware
- Maine
- Massachusetts
- Minnesota
- New Jersey
- New York
- Oregon
- Rhode Island
- Vermont
- Washington
The following states currently impose an estate tax:
- Connecticut
- District of Columbia
- Hawaii
- Illinois
- Maine
- Maryland
- Massachusetts
- Minnesota
- New Jersey
- New York
- Oregon
- Pennsylvania
- Rhode Island
- Vermont
- Washington
- Wisconsin
| State | Gift Tax Exemption | Estate Tax Exemption |
|---|---|---|
| Connecticut | $100,000 | $2 million |
| Delaware | $10,000 | $5.7 million |
| Maine | $10,000 | $5 million |
| Massachusetts | $10,000 | $1 million |
| Minnesota | $350,000 | $3 million |
| New Jersey | $16,000 | $2 million |
| New York | $16,000 | $6 million |
| Oregon | $11.2 million | $1 million |
| Rhode Island | $1 million | $6.5 million |
| Vermont | $100,000 | $5 million |
| Washington | $10,000 | $2.19 million |
The gift tax exemption is the amount of money that can be gifted without incurring a tax. The estate tax exemption is the amount of money that can be passed on to heirs without incurring a tax.
It’s important to note that these laws are subject to change, and it’s always advisable to consult with an estate planning professional for the most up-to-date information.
Well, there you have it! I hope this article has cleared up any confusion you had about the taxability of gifts and bequests. If you still have questions, feel free to consult with a qualified tax professional. Thanks for reading, and be sure to visit again soon for more informative and engaging content.