Historical Gift Tax Exclusion Amounts: Be A Rich Strategic Giver

The historical gift tax exclusion amount is $17,000 for 2023, up from $16,000 in 2022. As a result, you may want to contribute more to your child's 529 plan or give them more money.

Despite paying taxes your entire life, even when you die, the government still wants something from you! As a financially savvy individual, it behooves you to understand as much about the tax rules as possible. At the very least, you need to know about the historical gift tax exclusion amount. After all, tax is likely your largest ongoing expense.

The Internal Revenue Code imposes a gift tax on property or cash you give to any one person, but only if the value of the gift exceeds a certain threshold called the annual gift tax exclusion. The historical gift tax exclusion amount tends to increase by $1,000 increments every three to five years.

That's right, you're not allowed to give more than the annual gift tax exclusion without incurring a tax. This is despite having already paid taxes on the $17,000!

Gift Tax Example

Historical Gift Tax Exclusion Amounts

Let's say you earn $200,000 a year and pay a 20% effective tax rate. Your take home pay is $160,000 and you save 20% a year, or $32,000 a year.

If you wanted to give 100% of your hard-earned savings to someone, you may have to eventually pay an additional tax on $32,000 – $17,000 = $15,000 if your estate ends up over the estate tax exemption amount.

Thankfully, the estate tax exemption amount is $12,920,000 per person in 2023. But the estate tax exemption amount is at risk of going down under the Biden administration. President Biden wants to raise income taxes, raise capital gains taxes, and do away with the stepped-up basis as well.

Estate Tax Exemption vs. Annual Gift Tax Exclusion

Please don't confuse the estate tax exemption amount and the annual gift tax exclusion amount. The estate tax exemption amount is the amount of wealth you are able to pass on to another person upon your death without incurring additional taxes. The top estate tax rate is 40%.

The annual gift tax exclusion amount is what you can give annually that legally reduces the size of your estate so you don't have to pay estate taxes or so you can pay less in estate taxes.

If your estate is greater than or will be greater than the estate tax exemption amount the year you die, you strategically want to annually gift the maximum tax exclusion amount to as many people you care about as possible. Otherwise, your estate would have to pay federal estate tax on every $1 over the estate tax limit when you die. Then there are potentially state estate taxes you have to pay.

Below is a chart that highlights the federal estate tax rates. If your estate is exactly $1 million over the estate tax exemption amount, your estate will have to pay $345,800 in estate taxes. Every dollar over $1 million above the estate tax exemption amount pays an additional 40% federal estate tax. Ouch!

Federal estate tax rates - historical gift tax exclusion amounts and tax rates on estates

Related reading: Estate Planning Basics You Should Know

The Purpose Behind The Annual Gift Tax Exclusion

If there was no annual gift tax exclusion amount, a generous wealthy person could simply give away as much as possible up to the estate tax exemption threshold until no death tax liability remains.

Given we have already paid taxes on our wealth, I don't think there should be an additional death tax. However, I do understand that part of the reasoning behind creating an estate tax threshold is to prevent the formation of family dynasties who could end up ruling the country just because they are rich and not because they did anything meaningful.

If you're super wealthy, don't worry though. You can always create, among other things, a Grantor Retained Annuity Trust, to pass on much of your fortune tax-free to your heirs.

Historical Annual Gift Tax Exclusion Amounts

The annual gift tax exclusion was indexed for inflation as part of the Tax Relief Act of 1997. Below is a chart that highlights the historical annual gift tax exclusion amounts.

Historical annual gift tax exclusion amounts

The historical gift tax exclusion amount has historically gone up by $1,000 every 3-5 years. In 2023, the annual gift tax exclusion amount is $17,000.

The historical gift tax exclusion amount is not huge, but it's better than a kick in the shins. Anybody who is projected to have an estate larger than the estate tax exemption amount should seriously consider actively giving away more of your wealth to your children and loved ones today.

What Is The Definition Of A Gift?

The IRS defines a “gift” as anything for which you don't receive full consideration in return. Sounds a little vague right? Let's use a couple examples to illustrate.

Gifting A Property

If you sell your panoramic ocean view home in San Francisco to your nephew for only $1,000,000 when its fair market value is $3,000,000, you've given a gift of $2,000,000. But here's the thing. “Fair market value” is subjective.

Some people hate San Francisco and would never in a million years pay $3,000,000, let alone $1,000,000 for a home. I've got the occasional reader from Georgia hating on anything I write about technology and this fine city. These folks are partially the reason why I'm investing in the heartland of America. I want to participate in the growth of lower cost, higher cap rate cities as the work from home trend explodes.

Some of you may be asking why on Earth would you sell your property to your nephew at a $2,000,000 discount to fair market value? Simple. Your estate is already well above the estate tax exemption limit. Instead of paying federal estate tax on the $2,000,000 gift, which equals at least $745,800, you'd rather find a way to gift some of the property's value to your nephew, who is nowhere near the estate tax threshold.

Your nephew could argue to the IRS that in his opinion, he bought the property at fair market value because San Francisco is a wasteland that is way past its prime. Even if the nephew did have to pay tax on the gift, the tax rate would more than likely be lower than the estate tax rate.

Gifting Money Strategically

Let's say that instead of selling a property at a discount, you're a dad who wants to make a cash gift to your son so he can purchase his own home. The last thing you want is for your 23-year-old son to live with you for years after college! My neighbor's son moved back in at age 24 back in 2014 and he has never left.

To prevent your son from becoming totally dependent on you in adulthood, you gift your son $300,000 strictly for a down payment on a home. $17,000 of that gift is free and clear of the federal gift tax, thanks to the annual exclusion. The remaining $283,000 is a taxable gift and would be applied against your lifetime exemption if you choose not to pay the tax in the year you made the gift. 

Spread Your Financial Gift Across More Years

But if you strategically break up the $300,000 and gift your son $17,000 on Dec. 31, and then gift your son an additional $283,000 on Jan. 1, the December gift is free and clear and only $270,000 of the subsequent $283,000 counts against his lifetime exclusion—$283,000 less that year's annual $17,000 exclusion.

Remember, the annual gift exemption is per person per year. 

You can give the annual exclusion amount to any one person every single year and never dip into your lifetime exemption. If you don't want to pay the gift tax on the $270,000 in the year the gift is made, you can reduce your lifetime gift tax exemption by this amount.

Despite your significant gift, you would still have $12,650,000 ($12,920,000 – $270,000) of the unified tax credit left to shelter your estate if you were to die in 2023. The estate tax threshold changes every year.

Superfund A 529 Plan – Gifting Education

One thing you might want to think about is using a 529 plan for generational wealth transfer purposes as well. The 529 plan is actually a great way to tax-efficiently gift your future generation education money.

I really think the best way to gift money is to superfund a grandchild or relative's 529 plan. Given the annual gift tax exclusion amount is now $17,000 a year in 2023, you can superfund $80,000 in a 529 plan.

Giving the gift of education is one of the best presents you could ever give someone. With a good education, you can do so many more things and have so much more confidence.

Gifting A Car

In another example, let's say you want to celebrate your niece getting into USC with a 2.6 GPA and a 1,560 SAT score (wink, wink). You can sell her your fair market value $80,000 Range Rover Sport for just $10,000 so she can better fit in and match all her classmates' cars. You've now given her a gift of $70,000. Further, you she gets to pay a much lower sales tax.

Or maybe not! When I mentioned in the past how I wanted to upgrade to a Range Rover Sport from a Honda Fit to better protect my family, I received a parade of dissenters who poo-pooed the Range Rover as one of the worst vehicles on the market due to reliability issues. To these folks, they probably wouldn't even spend $10,000 on a new Range Rover even if their uncle wanted to sell them one! Totally fair.

Here is the IRS's official definition of Fair Market Value: “The price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”

In other words, estimating the actual gift amount is a gray area. Nobody forced your niece to spend $10,000 on the Range Rover. To her, it could be just another car to get from point A to point B. And for the sake of reducing everyone's potential tax bill, she could be right.

More Gift Ideas

In addition to gifting your loved ones homes and cars, you can also make unlimited gifts in the form of tuition and other qualified educational expenses and medical expenses if you pay the learning institution or the care provider directly.

In other good news, you can make unlimited gifts to political organizations and to your spouse, provided your spouse is a U.S. citizen. But seriously, giving massive sums of money to political organizations is not the best use of funds. Look at Michael Bloomberg spending $1 billion on his presidential campaign and getting nowhere! What a waste.

Of course, how you spend your fortune is up to you.

Filing A Gift Tax Return

If you want to be a lawful American citizen, then you must file a gift tax return (Form 709) simultaneously with your regular tax return. Gift tax returns are due simultaneously with your regular tax return.

Here's the thing. Less than 1% of Americans will accumulate an estate larger than the estate tax exemption limit, especially when the estate tax exemption threshold is $12.92 million per person (for 2023). Therefore, I've got to imagine that many citizens don't even bother filing a gift tax return.

However, if your net worth is rocking in the tens of millions and up, you should probably get your records and taxes in order. If not, you had better at least donate enough money to charity so that your estate is right below the threshold.

As always, consult with your tax adviser before making any tax-related decisions. The rules are complicated and always changing. The last thing you want to do is make a mistake and have to file an amendment.

Build More Wealth Through Real Estate

Real estate is my favorite way to build wealth because it is a tangible asset that is less volatile, provides utility, and generates income. Further, real estate has tremendous tax benefits, such as the non-cash depreciation expense and tax-free profits of $250,000/$500,000 for single and married couples.

In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing over $900,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.

Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio. 

Manage Your Estate Better

In order to manage your estate better, you need to diligently keep track of your wealth. The best way to do so is with Empower, the best free wealth management tool on the web.

In addition to better money oversight, you can run your investments through their award-winning Investment Checkup tool. See exactly how much you are paying in fees and whether you are properly allocated based on your risk tolerance.

After you link all your accounts, use their Retirement Planner. It pulls your real data to give you as pure an estimation of your financial future as possible. The Retirement Planner helps you visualize how large your estate will be. This way, you can spend and give more appropriately today through decumulation.

Empower Retirement Planner Free Tool
Personal Capital's Free Retirement Planner

Related posts to estate planning:

The Benefits Of A Revocable Living Trust

Three Things I Learned From My Estate Planning Lawyer Everyone Should Do

Create a Death File And A Detailed Schedule Of Assets For Your Estate Plan

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Disclosure: I am an investor with Fundrise and earn a commission from partner links on financialsamurai.com

About The Author

23 thoughts on “Historical Gift Tax Exclusion Amounts: Be A Rich Strategic Giver”

  1. I am not a fan of the estate “death tax” even though I will likely never ever exceed the amount (unless it dramatically is reduced). It essentially is double taxation and penalizes those people who save money instead of spend it all.

    I have been using the annual gift exclusion for my daughter by funding the max each year for her 529.

  2. Sam
    Love your articles. Last year, I finally sat down with an attorney and established a Will, Trust and a Power of attorney. At 44, I was probably late to the game on this. Having gone to work as a life and health underwriter right out of school, I’ve had ample life insurance in force for 20+ years. However, the Will, Trust and POA had always eluded my time. I’m nowhere near the estate tax exemption number yet (1/5 of the way networth) but I’ll keep plugging away and see how close I can get to it! I like the idea of free and clear rental properties, managed by a property management company, and then funneling that residual passive income to my kids once I’m “done” with it.

    1. The thing is, if you don’t have a revocable trust, if you die, probate court is more expensive and time consuming.

      My estate planning attorney argued that for these reasons, setting up a revocable trust is more important for those without large financial resources.

  3. I am hopefully not the guy from Georgia you referenced in the article, but I seriously doubt the estate exclusion will go below $5.0 million per person due to the high net worth of many blue state voters on the coasts.

      1. Karens in GA probably don’t live inside the perimeter (ITP). City of Atlanta is not cheap anymore, abysmal education system will force you to go the private school route or move outside the perimeter (OTP) if you have children.

  4. Consider also gift splitting, which is where you and your spouse consent to treat the gift as given by the both of you, which will double the gift-tax-free amount you can give in any year.

    You can also set up an irrevocable trust (sometimes called a Crummey trust) which gives you the ability to give the gift with strings attached. Instead of giving the $15,000 per person outright, you can put it in trust for their education, support, etc. and shield the assets of the trust from creditors. Talk to a knowledgeable attorney if you want to set something like that up, though. There are a few technicalities you need to comply with for it to work.

    If you really want to maximize your asset shifting to the next generation, give gifts of income producing/appreciating property instead of cash. My grandparents gave tiny little slivers of mobile home park interests to their kids and grandkids when we were all very young. After 40 years of income and appreciation, it ends up being a huge shift in wealth, especially if you’re Catholic and you have 9 children and about 30 grandchildren. That’s a LOT of $15,000 annual gifts.

    1. Thanks,
      This is really helpful. It’s a bit awkward if one waits until he’s dead to find out that he’s made legal mistakes in setting up the trust.

    2. Good to know!

      With gift splitting, what’s the difference between splitting a gift by two people and each individual person giving the max? Both lead to $30K for 2020.

      “Give gifts of income producing/appreciating property instead of cash.” Do you mind clarifying this example with some numbers? Are you saying that the income generation and appreciation of the property is so much greater than the annual gift tax exclusion in the long run?

      For example, one grandchild got 10% of a mobile home park that generated $3,000 a year, 30 years ago. It was worth $10,000. Today, it’s worth $100,000 and is spitting out $30,000 a year?


      1. The gift splitting works the same as giving the gift from 2 different individuals. The only difference is that gift splitting is a way to give one spouse’s separate property without gifting it to a spouse first, and then to the kids. If you’re trying to keep separate property separate (just in case), it’s a slightly cleaner way to do it, but the punchline is the same as to giving 2x the annual gift amount.

        Sure thing, here are some numbers. Assume that in years 1-5, you give $10,000 worth of a mobile home park interest to a kid. Assume the park interest appreciates by 2% per year (very conservative) and that it generates income at a 5% cap rate (also very conservative). You’ve given 5 years’ worth of gifts, for a total of $50,000. After 30 years of income and appreciation growth at those very modest numbers, you get a total of $179,798.73 in wealth transfer. The park interest alone (principal) would be worth about $87,085 (instead of the $50k given), plus the kid will have received $92,713.38 in income over the years.

        This example doesn’t take into account: (1) appreciation in excess of 2% per year, (2) income in excess of 5% per year, or (3) minority interest discounting. Also, if the park interest is leveraged with a mortgage, you could do even better.

        If you tweak the numbers and assume a 3% appreciation and 8% income rate, you get a total of $286,486.65 of wealth transferred ($114,496.36 principal plus $171,990.29 income). Plus, the income is transferred to a kid who is likely in a lower tax bracket than you are.

        If you did a $10,000 annual gift every year for the entire 30 years, instead of stopping at 5 years’ worth of gifts, you could transfer a total of $996,764.87 in principal and interest at the 3%/8% range.

        Multiply those numbers by a whole bunch of recipients and you can really do some damage over time. :)

        1. Got it! Makes sense. Bottom line, giving an appreciating asset every year is much better than giving cash every year.

          Is it “easy” to give a $10,000 interest each year in a mobile home though? Giving $10,000 cash or check is easy. But I’m assuming there’s some kind of amendment to the revocable trust each time?

          1. Yep, it’s super easy. No amendment to the revocable trust needed. If the mobile home park is in an LLC or partnership, you just sign a piece of paper titled something like “Assignment of [LLC/partnership] Interest” that specifies that as of a certain date, a certain percentage of the interest is being given to the beneficiary or to a trust for the beneficiary. Change the LLC/partnership’s internal books to reflect that the beneficiary is now an owner of that percentage. Done!

            If the park is titled in your individual name instead of an LLC, then you’d need to actually deed over a portion of the property. I wouldn’t recommend holding it in your individual name or revocable trust, though. If it’s a smaller asset and well insured, then okay, but if it’s a bigger asset like a mobile home park, it should really be in a limited liability entity of some kind.

            Revocable trusts really only need to be amended if you want the percentages of gifts to your beneficiaries to change after your death. If you’re giving lifetime gifts, you just write a check or make the gift. No amendment necessary.

  5. Love that you are clarifying some estate issues. My wife and I are getting up in age. Our home and investments are worth upwards of $10 million. We’d like to set up a fund or trust to benefit our heirs in perpetuity for restricted use such as education, etc.
    I’ve seen first hand what happens to trust babies – Ferraris, drugs, lack of ambition etc. and wish to avoid those failings.
    I can’t find examples of trusts/funds set up for this purpose. It seems that attorneys keep this information pretty close to their chest. $$$$
    I’d like to be well armed before I see (pay) an attorney. Past experience with attorneys have demonstrated to me that I’ve often paid a lot for very little or very poor results.
    Thanks for any guidance you can provide.

    1. Setting up a trust is a great idea, Eric. I think it would be a good idea for you to talk to 2 or 3 attorneys in your area who practice exclusively or almost exclusively in estate planning. I’d be most concerned about seeing a lawyer who claims to be a generalist. Some solo practitioners will take anything that walks in the door, and that would be your biggest risk. If you find someone who does mostly estate planning, you’re probably going to be pretty safe. But still, I’d interview a couple before deciding, or ask a friend for a recommendation. If you know a good attorney who practices in a different area of law, you could ask them for a recommendation, too. Good attorneys tend to refer good attorneys, in my experience.

      As far as why they keep information close to their chest, there are a couple of reasons. One is that we don’t want our work product stolen by potential clients. We put a lot of work into a plan, and if they make off with a draft and don’t pay, we get hosed. The other reason is because even if a client steals our draft and makes changes on their own, they might screw it up and try to sue us for malpractice. Not a good scenario for the attorney OR the client. Good luck!

  6. I didn’t realize there was such a thing as a gift tax return! Leave it to our overcomplicated tax system to have such a thing. I highly doubt many people have filed one before like you said though. Although the annual exclusion amounts have been going up, they really should increase the amounts further imo. $10k in 2001 vs $15 in 2020 and probably for a few more years seems too slow.

  7. Love this article, and if the estate amount changes back to lower number will be invaluable. Right now I have zero concerns of $11 million, but if estate taxes go back to $1 million again or even $2.5 million per person I will be re-reading your article and speed dialing an estate/tax attorney. When I was growing up the amount was $1 million with a 55% tax rate, and my parents spent a significant amount of time and money to protect their estate from the IRS. Once the the amount got over $5 million they got a super simple will done by an associate for like $500. My fear is all this free money the government is giving out will have to get paid back with significantly higher taxes on the wealthy and the perceived wealthy. Estate tax is easy money.

    1. Thanks! And I’ll be sure to update it every year.

      It is absolutely amazing the estate tax exemption amount has risen to $11.58 million per person from just $1 million.

      Now is truly the best time to accumulate wealth and die in the history of America.

  8. Tibi Strazzera

    Sam, I think your looking back a few years with your federal estate tax exemptions. There are certain states which tax at your given rate but the Fed estate exemption is currently at $11,580,000 per individual, allowing $23,160,000 per couple.


    Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 – 2005; $2,000,000 in 2006 – 2008; $3,500,000 for decedents dying in 2009; and $5,000,000 or more for decedent’s dying in 2010 and 2011 (note: there are special rules for decedents dying in 2010); $5,120,000 in 2012, $5,250,000 in 2013, $5,340,000 in 2014, $5,430,000 in 2015, $5,450,000 in 2016, $5,490,000 in 2017, $11,180,000 in 2018, $11,400,000 in 2019, and $11,580,000 in 2020.

      1. Well, if you had less than 11mil you wouldn’t need to worry about that unless people needed the money earlier and in that case you could buy properties in your name as the parent and allow for minimal rent due and or create a loan that would only be due the Amt per year then carry over the remaining amt that would absorb into the estate tax. This is just an example of possible avoidance of your said 40%.

        1. Yep, but there’s a chance many financially savvy folks who save, invest and build side business will have estates greater than the estate tax exemption amount decades from now. Therefore, it’s good to get smart on all this stuff now.

          For example, if you have $1 million today, save $50K a year, and earn 7% compounded a year, you will have over $12 million in 30 years.

  9. Love the article Sam! Great job and appreciate the effort and knowledge gained!

    Please consider additional articles on the stock and bond markets. Would love to hear what asset classes you invest in and why – S&P 500, High Dividend Funds, REITs, Treasuries, etc.

    Thank you sir!

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