Gift Tax and Lifetime Exclusion

[Patrick Crotty]

Hello BP world, I may be in the fortunate position of being gifted a plot of undeveloped land. The donor and myself are wondering if there are any ways to circumvent the gift tax that would come with the transfer of ownership of this plot of land. It is well over the $15k limit. 

  I have read a little about Lifetime Gift Exclusion but am not sure if that applies to any and all scenarios (if so, why doesn't everyone use it?).  Any good info would be very helpful. Thanks!!

[Dave Spooner]

@Patrick Crotty Firstly, I want to strongly suggest you speak to a CPA. If you're acquiring any real estate in general, a CPA is going to be a huge help, and in a situation like this, even more so.

That being said, here is my limited understanding of the situation - The annual gift tax exemption and lifetime exclusion are two totally different but related things. The lifetime exclusion is like a giant empty bucket. In 2020, it's set to $11.58 million. Everytime you give a gift to someone throughout your lifetime, you fill that bucket up more. Over the course of your life, if you fill that bucket entirely, you have to start paying taxes on the excess. So if you gift $12.58 million, you would pay tax on the $1 million extra.

The annual gift tax exemption exempts you from filling the bucket. In 2020, any gift less than $15,000 to an individual doesn't count against your lifetime exclusion. And, not really relevant to your situation but still notable, you can give $15,000 to as many individuals as you like. So in the above scenario, if you gave out a total of $12.58 million over the course of your life but half of it was comprised of individual $15,000 gifts, you would not have used up your lifetime exclusion and would not owe any tax.

Again, I'd definitely seek advice from an accountant, but depending on the value of the property, you're probably in good shape.