How Much Money Can Be Gifted Tax-Free in Massachusetts?
Massachusetts does not have a state gift tax, which makes gifting relatively straightforward. This makes Massachusetts an attractive place for individuals looking to gift money or assets to family members without worrying about additional state-level taxation. However, there are federal gift tax rules that come into play, particularly when gifts exceed certain amounts.
Federal Gift Tax Laws
Although Massachusetts does not have a state gift tax, federal gift tax rules still apply. The IRS imposes limits on the amount of money that can be gifted without triggering a federal gift tax. The key limits include:
Annual Gift Exclusion:
You can gift up to $18,000 per recipient per year without triggering federal gift tax. This amount applies to each individual recipient, so you can gift $18,000 to multiple recipients in a single year without any gift tax consequences.
If you are married, you and your spouse can each gift $18,000 per recipient, allowing you to gift a total of $36,000 per recipient in a year.
Lifetime Gift and Estate Exemption:
In addition to the annual exclusion, you can transfer up to $13.61 million in gifts or estate assets over your lifetime without incurring federal estate taxes. This lifetime exemption includes both gifts made during your lifetime and the value of your estate at the time of your death.
If you make gifts that exceed the annual exclusion, the excess amount will count toward your lifetime exemption. For example, if you gift $100,000 to someone, $82,000 will count against your $13.61 million lifetime exemption.
Important Considerations for Gifting
Direct Payments for Medical or Educational Expenses:
Gifts made directly to medical providers or educational institutions for someone’s medical expenses or tuition are not subject to federal gift tax, regardless of the amount. These direct payments are excluded from both the annual and lifetime gift tax limits.
Gifts to Spouses:
Gifts between spouses are generally exempt from gift tax, meaning you can transfer unlimited assets to your spouse without triggering gift tax, as long as both spouses are U.S. citizens.
Gift Tax Reporting:
If you exceed the annual exclusion limit for a recipient, you are required to file IRS Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. This form reports gifts above the exclusion amount but doesn’t automatically mean you will owe taxes, as the excess will count against your lifetime exemption.
