Gift Tax

The Gift Tax is a federal tax imposed on the transfer of property or money from one individual to another without receiving something of equal value in return. This tax is applicable when the value of the gift exceeds a certain threshold, which is adjusted periodically for inflation. As of 2023, individuals can gift up to $17,000 per recipient per year without incurring any gift tax. Gifts exceeding this amount may be subject to taxation, although they may also count against the giver’s lifetime exemption limit.

The Gift Tax is designed to prevent individuals from avoiding estate taxes by transferring their wealth to others while they are still alive. For instance, if a parent gives their child $20,000 in one year, the first $17,000 is exempt from the tax, but the remaining $3,000 may be subject to the Gift Tax. The responsibility to pay the tax typically falls on the donor (the giver) rather than the recipient (the receiver) of the gift.

There are several exceptions to the Gift Tax rules, including gifts made for educational or medical expenses, which may not be subject to the tax if payments are made directly to the educational institution or medical provider.

In Texas, as in other states, the Gift Tax operates under federal regulations, as Texas does not have a state-level gift tax. Therefore, residents should be aware of the federal exemptions and limits when planning their gifting strategies, especially in the context of estate planning.