Chargeable lifetime transfers are taxed based on the value of the property transferred during a person’s lifetime. The tax is calculated by applying a progressive tax rate to the cumulative value of all chargeable transfers made during the person’s lifetime. The tax rates range from 18% to 40%, depending on the value of the property transferred. The tax is payable by the person who made the transfer.
Gift Tax Exemption and Rates
The gift tax is a tax on the transfer of property by gift. A gift is any transfer of property for less than full and adequate consideration. The gift tax is imposed on the donor of the gift, not on the recipient.
Lifetime Gift Tax Exemption
The lifetime gift tax exemption is the amount of money that a person can give away tax-free during their lifetime. The lifetime gift tax exemption is currently $12.92 million. This means that a person can give away up to $12.92 million during their lifetime without having to pay any gift tax.
Gift Tax Rates
Gift tax rates range from 18% to 40%. The gift tax rate that applies to a particular gift depends on the amount of the gift and the donor’s lifetime gift tax exemption. The following table shows the gift tax rates for 2023:
| Taxable Amount | Gift Tax Rate |
|---|---|
| $0-$10,000 | 18% |
| $10,001-$20,000 | 20% |
| $20,001-$40,000 | 22% |
| $40,001-$60,000 | 24% |
| $60,001-$80,000 | 26% |
| $80,001-$100,000 | 28% |
| $100,001-$120,000 | 30% |
| $120,001-$140,000 | 32% |
| $140,001-$160,000 | 34% |
| $160,001-$180,000 | 36% |
| $180,001-$200,000 | 38% |
| Over $200,000 | 40% |
Calculation of Lifetime Taxable Transfers
Lifetime taxable transfers are calculated by subtracting the annual exclusion amount and any other allowable deductions from the total value of gifts made during a person’s lifetime.
- Annual exclusion amount: This is the amount that can be given to each individual tax-free each year. For 2023, the annual exclusion amount is $17,000.
- Other allowable deductions: These include the marital deduction (for gifts made to a spouse) and the charitable deduction (for gifts made to qualified charities).
Once the total lifetime taxable transfers have been calculated, they are added to the value of the person’s taxable estate at death to determine their total taxable transfers.
Example
Suppose a person gives $20,000 to their child in 2023. The annual exclusion amount for 2023 is $17,000. Therefore, the person’s lifetime taxable transfers would be $20,000 – $17,000 = $3,000.
Tax Rates and Exemptions
The tax rates for lifetime taxable transfers are the same as the estate tax rates. The rates range from 18% to 40%. There is also a lifetime exemption amount, which is the amount that can be transferred tax-free during a person’s lifetime. For 2023, the lifetime exemption amount is $12.92 million.
| Taxable Amount | Tax Rate |
|---|---|
| $0 – $10,000 | 18% |
| $10,000 – $20,000 | 20% |
| $20,000 – $40,000 | 22% |
| $40,000 – $60,000 | 24% |
| $60,000 – $80,000 | 26% |
| $80,000 – $100,000 | 28% |
| $100,000 – $150,000 | 30% |
| $150,000 – $200,000 | 32% |
| $200,000 – $250,000 | 34% |
| $250,000 – $300,000 | 36% |
| $300,000 – $500,000 | 37% |
| $500,000 – $1 million | 39% |
| Over $1 million | 40% |
Unified Credit Against Generation-Skipping Transfer Tax
The unified credit against generation-skipping transfer tax (GST) is a credit that reduces the GST owed on a generation-skipping transfer. The unified credit is the same amount as the unified credit against the estate tax. For 2023, the unified credit is $12,925,000.
In general, a generation-skipping transfer is a transfer of property from a person to a person who is two or more generations younger than the person making the transfer. For example, a transfer from a grandparent to a grandchild would be a generation-skipping transfer. GST is only imposed on generation-skipping transfers that exceed the GST exemption amount, which is currently $12,925,000.
The unified credit can be used to reduce the GST owed on a generation-skipping transfer in the same way that it can be used to reduce the estate tax owed on an estate. The unified credit is applied first to reduce the GST owed on the generation-skipping transfer. Any remaining GST owed can then be paid using the GST exemption amount.
The following table shows how the unified credit is applied to reduce the GST owed on a generation-skipping transfer:
| Generation-Skipping Transfer | GST Owed | Unified Credit Applied | GST Due |
|---|---|---|---|
| $1,000,000 | $78,000 | $78,000 | $0 |
| $2,000,000 | $156,000 | $12,925,000 | $143,075 |
| $3,000,000 | $234,000 | $12,925,000 | $211,075 |
Generation-Skipping Transfer Tax Rates and Exclusions
A generation-skipping transfer tax (GST) is a tax imposed on certain transfers of property that skip a generation. The GST is designed to prevent individuals from avoiding estate and gift taxes by transferring property to their grandchildren or other descendants.
The GST is imposed at a flat rate of 40%. However, there are several exemptions and exclusions that can reduce or eliminate the GST. The most important exclusion is the annual exclusion for gifts. Each year, an individual can give up to $15,000 to each of their grandchildren or other descendants without incurring any GST.
In addition to the annual exclusion, there is also a lifetime exclusion for generation-skipping transfers. This exclusion is currently set at $11.58 million. Any generation-skipping transfers that exceed the lifetime exclusion are subject to the GST.
Here is a table that summarizes the GST rates and exclusions:
| GST Rate | Annual Exclusion | Lifetime Exclusion |
|---|---|---|
| 40% | $15,000 | $11.58 million |
Well, that’s all there is to know about how chargeable lifetime transfers work! Remember, the tax rates and rules can change over time, so it’s always a good idea to check with a financial advisor or tax professional if you’re planning a transfer of significant value. Thanks for sticking with us, and be sure to visit again when you need some more tax-related knowledge bombs!