If you live in Florida, familiarizing yourself with the gift tax is imperative. Unfortunately, many are unsure how this works or when to file, which can cause issues when tax season arrives. However, taking the time to learn what this is and how a Pasco County, FL estate planning lawyer can help you with these matters is critical. The following blog explores what you should know about this tax if you plan on gifting assets soon.
What Is the Gift Tax?
Generally, any time you give a substantial monetary gift or an asset of high value, you must report it on your taxes. This is so the Internal Revenue Service (IRS) can tax the amount. Any time you give or transfer an asset with no return value, it is considered a gift. Similarly, if you gift something and receive less than its worth in return, you can be taxed on the difference. For example, if your child buys your family home valued at $800,000 for $100,000, this would be considered a gift.
As of 2024, the federal annual limit, meaning how much you can give in a year without facing tax consequences, is $18,000 per recipient. Additionally, the lifetime exemption, which is how much you can give away throughout your life without having it taxed, increased to $13.61 million. Essentially, if you were to gift your grandchild $20,000 in one year, you would face the gift tax on the $2,000 that exceeded the annual limit. However, that $2,000 would apply to your lifetime exemption, meaning you will not face any tax consequences.
It’s also important to note that, unlike other states, Florida does not impose state gift taxes. As such, only the federal limits will be applied to gifts in Florida.
Is There Anyway to Avoid It?
Generally, the easiest way to avoid incurring the first tax is to honor the annual limits by spreading out how much you gift someone over a few years.
However, you can also consider that married couples can gift joint assets up to $36,000 in value. As such, using your marriage to your benefit can help in these matters.
Additionally, navigating how you gift assets is essential. For example, if you wish to pay for your grandchild’s tuition, you may assume that gifting them the amount so they can make payments is easiest. However, you will be taxed on this amount. As such, making payments directly to the educational institution for the child’s tuition can help you pay for their college while avoiding the tax consequences. The same goes for covering another person’s medical bills.
If you need assistance with making gifts and understanding the tax consequences, it’s in your best interest to connect with an experienced attorney from the Law Offices of Matthew J. Jowanna. We understand the complexities of this matter and, as such, we will do everything possible to help you navigate these challenging times. Connect with us today to learn more about how we can assist you.