What are the IRS rules about the maximum tax-free amounts?


Quick Answer

As of 2015, the limit on tax-free transfer amounts during life or at death, also known as the basic exclusion, is $5.43 million per person, according to Forbes. The annual exclusion is $14,000, meaning individuals can give a yearly maximum of $14,000 in assets tax-free without using their basic exclusion.

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Full Answer

The annual exclusion applies to gifts to each recipient, according to the Internal Revenue Service. This means each individual recipient can receive a maximum of $14,000 tax-free from the same donor. Gifts to political organizations, as well as gifts for medical, dental and tuition expenses are also tax-free as long as direct payment is made. Such gifts do not count toward the annual exclusion or basic exclusion.

The IRS requires all gifts to be reported in order to determine the amount of basic exclusion that has been used upon death, explains Forbes. If the basic exclusion is exceeded, the individual or the individual's heirs are liable for a tax of up to 40 percent. Married couples can share the basic exclusion during their lifetimes, notes Forbes. Widows and widowers can add any unused exclusion amount from their deceased spouse to their own exclusion amount. This allows them to transfer up to $10.86 million worth of assets tax-free.

Most gifts between spouses are tax-free even if they exceed the annual exclusion amount, according to Forbes. However, the annual limit on tax-free gifts to a spouse who is not a U.S. citizen is $147,000, as of 2015. The IRS also allows exceptions for certain savings plans. For example, a 529 college savings plan allows five years of annual exclusion gifts to be put into the plan in a single tax-free deposit, on condition that any further gifts during that five-year period be subject to gift tax.

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