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A review of the federal gift tax

On Behalf of | Oct 24, 2019 | Estate And Gift Tax Planning |

During the holidays, over loved ones’ birthdays and for other special occasions, New Jersey residents may relish in offering to their friends and relatives tokens of their love and appreciation. These gifts may range from modest items of personal meaning to lavish assets with financial growth opportunities. Many gifts may be given without thought to the federal gift tax, but as gifts grow in value they may become relevant to this important financial consideration.

The gift tax is applied to gifts of value that exceed a federally established threshold. Over time the gift limit to avoid the gift tax has gone up, and for 2019 gifts to any one person that exceed $15,000 may be taxed. That is to say, a person may give up to $15,000 worth of gifts to someone they love before they will be subject to the gift tax.

Not all gifts qualify for the gift tax. For example, gifts between spouses are not taxed, and the payments a parent or grandparent may make on their child or grandchild’s college tuition is not subject to gift taxation. Some medical payments, gifts to charities and political organizations and others may be excluded from gift taxation.

Payment of the gift tax is generally the responsibility of the individual who provides the gift rather than the recipient, which means a person may be required to pay a heavy tax burden on top of a high value gift to a friend or family member. There are ways that individuals can use their knowledge of the gift tax to reduce their estates and still provide for their loved ones.