If your financial health is robust enough that you’re able to help someone buy a house, you’ll be pleasantly surprised at the amount of tax-free money you can give. Typically, monetary gifts of this magnitude are reserved for family members, such as your children, but the tax on gifts from parents follows the same IRS guidelines as gifts from non-related taxpayers. And you don’t have to worry that your child or another recipient of your generosity will incur a tax liability, because the IRS does not consider your gift of money as taxable income.
The IRS doesn’t assess gift money tax until you have reached a certain threshold, called a lifetime exclusion. Over your lifetime, you can give up to $5.6 million in gifts without having to pay taxes on this money. If you're married, this amount doubles to $11.2 million because each spouse can give $5.6 million.
Tax-Free Monetary Gifts
The IRS tax-exempt allowances for monetary gifts are called exclusions because they are excluded from your overall tax liability as well as your recipient’s tax liability. Each year, the IRS establishes the amount of an annual exclusion, which is the maximum tax-exempt gift you can give each person per year. If you give someone more than the annual exclusion, you’ll have to report it on IRS Form 709 – United States Gift (and Generation-Skipping Transfer) Tax Return, which you’ll include with your annual tax return. But you still won’t have to pay taxes on the overage unless you exceed the lifetime exclusion, which represents the sum of all annual exclusion overages over your lifetime.
Tax-Free Monetary Gift Exception
As long as you do not exceed the lifetime gift exclusion, you’re off the hook for having to pay any gift taxes on money you’ve given someone to buy a house. The exception to this rule falls into place if you do give more than the lifetime exclusion allowance. At that point, not only will you have to pay gift taxes on any overage, but the amount of this overage will also reduce your estate tax exemption upon your death.
Gift Tax Exclusion 2018
Annual Gift Tax Exclusion. As of 2018, IRS tax law allows you to give up to $15,000 each year per person as a tax-free gift, regardless of how many people you gift.
Lifetime Gift Tax Exclusion. Beginning in 2018, you may give up to $5.6 million during your lifetime in tax-free gifts, not including your annual gift exclusions. For example, if you give your daughter $100,000 to buy a house, $15,000 of that gift fulfills your annual per-person exclusion for her alone. The remaining amount ($85,000) must be counted toward your lifetime exclusion. But if you also gift your daughter’s husband $15,000, both gifts are tax-free, and only $70,000 ($100,000 minus $30,000) will count toward your lifetime exclusion.
Gift Tax Exclusion 2017
Annual Gift Tax Exclusion. IRS tax law allows a gift limit in 2017 of up to $14,000 per person as a tax-free gift, regardless of how many people you gift.
Lifetime Gift Tax Exclusion. In 2017, IRS law allowed you to give up to $5.49 million during your lifetime in tax-free gifts, not including your annual gift exclusions.
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