The US Internal Revenue Service has announced that the annual gift tax exclusion is increasing in 2024 due to inflation. The exclusion will be $18,000 per recipient for 2024—the highest exclusion amount ever.

The annual amount that one may give to a spouse who is not a US citizen will increase to $185,000 in 2024. In addition, the estate and gift tax exemption will be $13.61 million per individual for 2024 gifts and deaths, up from $12.92 million in 2023. This increase means that a married couple can shield a total of $27.22 million without having to pay any federal estate or gift tax. For a couple who has already maxed out lifetime gifts, this means that they may now give away another $1.38 million starting in 2024.

ANNUAL GIFT TAX EXCLUSION

Each year, the IRS sets the annual gift tax exclusion, which allows a taxpayer to give a certain amount (in 2024, $18,000) per recipient tax-free without using up any of the taxpayer’s lifetime gift and estate tax exemption (in 2024, $13.61 million). For married couples, this means that they can give $36,000/year per recipient beginning next year.

For example, if a married couple has three children and five grandchildren, they may transfer $288,000 in 2024 to their descendants without touching their combined $27.22 million gift tax exemption, thus allowing them to transfer further substantial assets gift-tax-free. Not only are the assets removed from the taxpayers’ taxable estates, the assets’ future appreciation also avoids gift and estate taxes.

LIFETIME ESTATE AND GIFT TAX EXEMPTION

If an individual gifts an amount that is above the annual gift tax exclusion, a portion of the individual’s lifetime gift tax exemption ($13.61 million in 2024) will be used. The gift and estate tax exemption are linked, meaning that the use of one’s gift tax exemption will reduce the amount one may leave at death estate-tax-free.

If an individual makes gifts in excess of the annual gift tax exclusion, a gift tax return will be due on April 15 the following year to report the gift (and track the amount of the lifetime exemption that has been used).

It should be noted that although the IRS has announced that the lifetime estate and gift tax exemption will increase to $13.61 million in 2024, under current law, that amount will be decreased by half at the start of 2026.