How Much Can I Gift Each Year?

The IRS and New York State Department of Taxation and Finance allow you to gift away $13,000 per year (or $26,000 if you’re married) to unlimited individuals without incurring gift tax. However, any sums gifted to the same individual in excess of $13,000 will eat into your $1 million lifetime gift tax exemption. Thus, if you give your son $100,000 in 2009, then $13,000 is gift tax free and the balance of $87,000 is deducted from your $1 million lifetime exemption, leaving you with a balance of $913,000. While you should file a gift tax return (IRS Form 709), there won’t be any gift tax due. You will only have to pay taxes at the point in time when your lifetime gifts exceed $1 million.

Be mindful, though, of the interplay between the gift tax and Medicaid laws. While this type of annual gifting is perfectly legitimate from a tax standpoint, you must recognize that Medicaid does not view such gifting from the same set of lenses. In fact, Medicaid deems such gifts to be uncompensated transfers, resulting in a penalty period. Accordingly, gifting away assets may result in a period of ineligibility for Medicaid.

Also, don’t forget that once you gift away assets, they are no longer yours and are subject to your donee’s creditors and predators (i.e., taxes, in-laws, judgments and nursing homes). There are ways to gift assets to reduce your taxable estate while maintaining control over them and protecting them for your beneficiaries. I strongly suggest that you consult with a qualified estate planning and elder law attorney before engaging in any type of asset transfers or gifting programs. .