How to Legally Avoid the Utah Gift Tax

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Paul Sundin, CPA

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Did you know that by making a down payment for your child’s house, buying a car for your girlfriend, or even loaning money to your friend, you may have to pay a gift tax? In fact, people are making taxable gifts, and some of them don’t even realize it.

The good news for Utah residents, the state does not have any gift tax. However, you may still become responsible for a federal gift tax due.

Let’s see how federal gift tax legislation works in Utah and other similar states that don’t impose the state gift tax.

What is a Gift Tax, and how does it apply to Utah residents?

A gift tax can be applied to a property or money you give to another person for free or for a “nominal” fee. Even a money loan is technically a gift once it is interest-free.

Most Utah residents might have never heard of gift tax. The state does not have local gift taxation, and its residents only object to federal gift taxes.

Moreover, federal gift taxes become relevant and start being collected by IRS only if the donor (a person who makes the gift) has exceeded their annual or lifetime gift exemptions.

What are annual and lifetime gift exemptions?

The federal law sets a gift tax exclusion of $15,000 per person annually. It means that even though a Utah resident is not subject to state gift taxes, they can still become responsible for a federal gift due to transferring more than $15,000 to another person pro-bono.

In this case, you will have to fill the tax return (Form 709), and the transaction will influence your lifetime exemption.

However, there are several essential things everyone should know:

  • The amount of people who you can gift up to $15,000 per year is un limitless;
  • You can “split” gifts worth more than $15,000 with your spouse and, for instance, present a $30,000 car to your child without affecting your both lifetime exemption ;
  • There are certain types of “gifts” which are not affected by the federal gift tax. Those are gifts you make to your spouse, paying for someone’s education or medical treatment ordination to IRS-approves charity funds.

Final Thoughts

While Utah does not collect gift tax as well as estate and inheritance taxes, your estate and transactions may still become subject to federal taxation once you have sufficient property. Gifting your estate away for several years can let you significantly reduce the taxable estate.

In other words, the principles of federal gift tax exclusion of $15,000 come useful once you have sufficient estate and start thinking about estate planning.

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Gilbert, AZ