Keeping up with the federal gift tax rules

By Rocky Mengle

Thanks to the gift tax exclusion (a.k.a., the gift tax limit or gift tax exemption), you can give money or property each year to family members, friends and others without having to pay any federal gift tax or even file a gift tax return.

The federal gift tax rates range from 18% to 40%, so avoiding the tax can save you a lot of money. And not having to bother with a gift tax return can save you a lot of time.

So, if you’re feeling generous, read on to make sure you’re aware of the gift tax exclusion limit for 2023.

What is the federal gift tax?

Generally, the federal gift tax applies to all gifts of property by an individual during the year. The tax is typically paid by the person who gives the gift, not by the person who receives it.

However, if the giver doesn’t pay the tax, the recipient may have to pay it. Or, if the person giving the gift dies before the tax is paid, their estate is responsible for paying the tax.

It doesn’t matter if the gift is made directly or indirectly. And the gift tax doesn’t just apply to cash gifts, either. It applies whether the property given is real, personal, tangible or intangible.

So, for example, deeding a plot of land, giving a car, forgiving a debt, assigning the benefits of an insurance policy, or transferring stock could all trigger a federal gift tax bill. And if you’re giving something other than cash, the amount of the gift for gift tax purposes is the property’s “fair market value” on the date of the gift.

Generally, a gift is deemed “given” for gift tax purposes if you transfer property to someone else and you don’t expect something of at least equal value in return.

Fortunately, there are a number of gift tax exemptions that can be used to avoid paying the tax. The most well-known exemption is the annual gift tax exclusion.

This is a set dollar amount that you may give each year that isn’t subject to the tax (the amount is adjusted for inflation each year). And you can give up to that amount to as many people during the year as you want.

If you’re married, your spouse can also give up to the same amount — even to the same people that receive a gift from you.

There are other gift tax exemptions that may apply, too. For example, the gift tax generally doesn’t apply to gifts to your spouse, to charitable or religious organizations, to political organizations, to educational organizations for tuition for someone else, and to doctors or other healthcare providers as payment for the medical care of another person.

It’s important to note, however, that there may be special requirements or other

Sept. 10, 2024, this year.

The cap is not affected by the Fed’s interest rate hikes, so the limit can be helpful for borrowers with loans or credit card balances with variable interest rates that might exceed that amount. If you tend to carry a balance, it’s one way a credit union credit card can lower costs.

Credit unions may also offer higher savings rates than big banks, depending on the account. For instance, in the last quarter of 2022, the national average rate for a five-year credit union certificate of deposit was 2.33%, compared with 1.58% at banks, according to that same data set extracted by the NCUA.

You’re likely to find higher savings rates at an online bank, but credit union rates make it easy to house accounts under one roof, if that’s your preference.

Other credit union services

Profits are also returned to members through educational programs. SkyPoint

Federal Credit Union, for example, works with a credit counseling agency to help members who are struggling to pay off debts. SkyPoint also offers Banzai, a financial education program for students.

Jayah Kai-samba, a credit union member based in Texas, has also seen many programs offered at his institution.

“They do a good job of educating their consumers, so they are always offering webinars or in-person sessions to do trainings on financial education,” he said.

Credit unions may also offer more options to save. SkyPoint Federal Credit Union, for instance, offers savings accounts for different goals including holidays and special occasions.

Kai-samba uses similar options at his credit union to save for specific goals like vacations, home expenses or holidays. He has automatic payments set up to each account from every paycheck.

“I can have it split up separately, and it clearly shows how I’m progressing in each one of those distinct accounts,” Kai-samba said.

—AP/NerdWallet