Delaware Gift Tax Guide [Rules, Limits & Requirements]

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Paul Sundin, CPA

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Practice shows that sometimes people make taxable gifts without even knowing about it. In other cases, they can get too concerned about taxation even if it does not apply to their situation.

Whether you have sufficient property in Delaware and start thinking about estate planning or want to buy a car for your kid, knowing about state and federal gift taxes can save you a lot of trouble.

What is a gift tax, and how does it work?

Technically, any transaction can become subject to a gift transaction. When you give something away for free or at a lower price than the market one or even lend money interest-free for your relative, you may be making a taxable gift.

However, not all states impose a gift tax on their residents. Delaware is among those states that do not have a gift tax. However, the federal gift tax is applicable for all U.S. citizens and can come into action.

Since the one making the gift is responsible for paying tax due, it is essential to understand mechanisms of gift taxation even if you are a Delaware resident.

What is gift tax exclusion?

Federal gift taxation stipulates that you can gift away up to $15,000 in cash, stocks, bonds, or property to as many people as you want every year.

Once you go over the $15,000 limit with a particular gift, it automatically becomes taxable, and you have to report the transaction to IRS filing the Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return.

However, you can benefit from the tax exclusion principle once you have sufficient property in Delaware or any other state free from the state gift tax. Gifting away your property gradually every year, you can significantly reduce the taxable estate.

Although Delaware does not impose estate tax for decedents dying on or after January 1, 2018, the property may become subject to federal estate taxation. Therefore the matter remains relevant for Delaware residents with sufficient estate.

Technically, a married couple can gift away up to $30,000 to each child every year. Moreover, there is a possibility to “split” gifts between spouses and make a joint gift over $15,000 to one person.

It is also essential to remember that even if you make a $20,000 gift, and it is considered taxable, you still won’t be responsible for a gift tax due unless you exceeded your lifetime exemption amount. However, you are obliged to fill the gift tax return in this case.

Understanding the principles of gift taxation is essential even if you live in a state that does not have a local gift or estate taxes. It allows you to keep your estate under the radar, reducing its taxable part gradually to preserve your legacy for the heirs.

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