How Much Gift Tax Free Can I Pass on to My Heirs?

how much gift tax free

The gift tax is a relatively complex topic, but the good news is that the vast majority of people will never pay it. The reason is that the law allows for a certain amount of value to be passed on to heirs free of any federal gift tax or estate tax. This value is known as the lifetime gift and estate tax exemption and it allows most people to avoid gift taxes even if they make very large gifts.

But there are also some very specific rules about what qualifies as a gift and what doesn’t, so it’s important to understand these rules before making any significant gifts.

For 2022, the annual gift tax exclusion limit is $16,000 per recipient (or $32,000 for married couples who “split” their gifts). You can give as much of this amount as you like to as many different recipients as you like in a year without having to file a gift tax return. However, any gift that exceeds this threshold is subject to a federal gift tax and if you don’t keep careful records, it can be easy to run afoul of the rules and end up having to file a gift tax return.

In addition to the yearly gift tax exclusion, there are a number of other exemptions that allow you to pass on more property over time without having to worry about the gift and estate tax. These include paying someone else’s medical bills (as long as you are the person who pays the bill), paying for education expenses, and buying a home for somebody else.

You can also reduce your taxable estate by giving to charity. But you’ll need to consult with a financial professional before making any sizeable charitable contributions because there are many special requirements that apply.

For the average person, the reality is that it’s usually very difficult to reach the lifetime gift and estate tax exemption limit. Even if you give away large five- and six-figure sums, the amount of money that you’ll need to spend on your own care will likely prevent you from ever getting close to this level.

That’s why it’s so important to make sure you take advantage of the yearly gift tax exemption, lifetime exclusion, and other exemptions before they expire. The sooner you start, the more you’ll be able to remove from your estate and give to loved ones. And the more you give, the better your heirs will be able to secure their futures after your death. So get started on planning your own tax-free gift strategy today.