Gift Tax

A federal tax imposed on the transfer of property from one individual to another while receiving nothing, or less than full value, in return. For the gift tax to apply, the transfer must be in excess of the annual exclusion amount and not otherwise be excluded from gift taxation (e.g., gifts to a spouse or charity, or payments for the benefit of another made directly to providers of education or medical care services). In addition, an individual making gifts has an aggregate lifetime exemption, known as the applicable exclusion amount, before any gift tax is due. For 2022, that amount is $12.06 million, so a donor can give away up to $12.06 million throughout his or her lifetime while still avoiding the gift tax. However, this lifetime gift tax exemption applies to gift and estate taxes combined, so any exemption used to make lifetime gifts reduces the exemption available to shelter assets from the estate tax at an individual’s death. The maximum gift tax rate in 2022 is 40%.