There is no dollar limit on the amount that one person is allowed to give to another. Gift tax rules do not prohibit a donor from making gifts in excess of the annual exclusion ($15,000 for 2021). However, if more than the annual exclusion is given to any one recipient, other than a spouse or charity, the amount over the annual exclusion is considered a “taxable gift.”
Consequences of making taxable gifts:
- Donor is required to file a gift tax return (Form 709) for the year.
- Taxable gifts reduce the donor’s $11,700,000 (2021) lifetime gift and estate tax exclusion. Gift tax is paid once the exclusion is exhausted.
- Taxable gifts are added to the donor’s taxable estate at death.
Donors with small estates can make gifts over the annual exclusion and pay no gift or estate tax.