Gifting assets during your lifetime can have tax consequences under both federal and New Jersey laws. Understanding these rules helps you avoid unexpected tax liabilities and ensures your gifts benefit recipients as intended.
Federal gift tax rules
The federal gift tax applies when you transfer property without receiving full value in return. The IRS allows you to gift up to $18,000 per recipient in 2024 without filing a gift tax return. If you give more than this amount, you must report it to the IRS using Form 709. Gifts exceeding the annual limit count against your lifetime gift and estate tax exemption, which stands at $13.61 million in 2024. Once you surpass this exemption, additional gifts may incur a tax.
New Jersey gift tax considerations
New Jersey does not impose a separate gift tax. However, the state does have an inheritance tax that applies when certain beneficiaries receive assets after your death. If you give away assets shortly before passing, New Jersey may still consider them part of your estate for inheritance tax purposes.
Reporting and tax-free gifting strategies
If a gift exceeds the annual exclusion, it does not necessarily mean you owe tax. It only reduces your lifetime exemption amount. The IRS requires you to file Form 709 to track these gifts. Gifts to your spouse qualify for the unlimited marital deduction and do not count against the exemption. Payments made directly to medical or educational institutions on behalf of someone else also remain tax-free and do not count toward the gift tax limit.
Planning gifts wisely
Understanding gift tax rules helps you structure gifts in a way that maximizes benefits while avoiding unnecessary taxes. Careful planning ensures compliance with federal and state laws while protecting your estate from potential tax burdens.
