Understanding the lifetime gift tax exemption is crucial for effective estate and financial planning. For 2024, individuals have a significant opportunity to gift assets without incurring federal gift tax. This article breaks down the key aspects of the lifetime gift tax exemption in 2024, drawing upon official IRS resources to provide you with the most accurate and up-to-date information.
The lifetime gift tax exemption, also known as the lifetime estate and gift tax exemption, represents the cumulative amount of money and assets you can gift during your lifetime and upon your death without facing federal gift or estate taxes. For gifts made in 2024, this exemption is set at a substantial $13.61 million per individual. This figure is indexed for inflation annually, offering a considerable window for wealth transfer strategies.
It’s important to distinguish the lifetime gift tax exemption from the annual gift tax exclusion. While the lifetime exemption is a cumulative limit over your entire life, the annual exclusion is a per-person, per-year amount that you can gift to any number of individuals without using up any of your lifetime exemption. For 2024, the annual gift tax exclusion is $18,000 per recipient. This means you can gift up to $18,000 to as many people as you wish each year, gift tax-free, without impacting your lifetime exemption.
Alt text: Table displaying the Basic Exclusion Amount for Estate Tax purposes from 2011 to 2025, highlighting the significant increase in recent years and the 2024 amount of $13.61 million.
The current high exemption amounts are a result of the Tax Cuts and Jobs Act (TCJA) of 2017. This legislation temporarily doubled the exemption amount, and it is scheduled to revert to pre-2018 levels after 2025. However, the IRS has clarified that individuals taking advantage of this higher exemption from 2018 to 2025 will not be adversely affected when the exemption amount decreases in the future. This provides reassurance for those making large gifts now, ensuring that these gifts will not retroactively become taxable.
Planning Considerations for 2024
Given the generous lifetime gift tax exemption in 2024, individuals with substantial estates should consider strategies to utilize this exemption. Gifting assets now can remove future appreciation from your taxable estate, potentially leading to significant tax savings in the long run. While the exemption is high, it is not permanent at this level. Understanding the potential sunset of the current law is a key element in effective estate planning.
Consistent Basis Reporting
Another important aspect to consider when making gifts, particularly of appreciated property, is basis reporting. The IRS has issued regulations on consistent basis reporting between estates and beneficiaries. This means that the basis of property acquired from a decedent must be consistent with the value of that property as determined for federal estate tax purposes. Proper reporting and valuation are essential to ensure compliance and avoid potential issues with the IRS.
Conclusion
The lifetime gift tax exemption for 2024 presents a significant opportunity for individuals to transfer wealth tax-efficiently. With an exemption of $13.61 million, and the clarity provided by the IRS regarding future changes, now is an opportune time to review your estate plan and consider utilizing gifting strategies. Consulting with an estate planning attorney or financial advisor can help you navigate these rules and make the most of the current lifetime gift tax exemption in 2024. Keep in mind the scheduled changes after 2025 and plan accordingly to maximize the benefits of current tax laws.
