While the matter of taxable gifts may be pretty concerning for many taxpayers, in fact, it does not apply to all gifts as most states, including New York, don`t impose local gift taxes on their residents.
However, gift and estate taxation are deeply correlated. Therefore, gift planning can be an essential part of the overall estate planning once you understand federal tax principles.
This article includes everything you need to know about gift tax in New York and its effect on your estate and legacy.
What is a taxable gift in New York?
As we have already mentioned, New York does not have its state gift tax. However, it does not mean that the state`s residents can gift away as much money as they want without any tax due.
Federal gift taxation is still relevant for all US residents. However, the federal gift tax exemption allows you to gift away up to $15,000 to as many people as you want every year. Once you are married, the sum doubles.
It means that a married couple can gift away the $30,000 value of their wealth to each child, legally reducing the taxable estate part. Indeed, it is a widespread practice in New York and other states with similar tax legislation.
However, it is essential to remember that New York has a 3-year lookback rule for gifts, unlike many other gift-tax-free states. It means that all gifts made 3 years before the donor`s death are tied back to their estate. In other words, the earlier a New York resident starts estate planning through gifting the estate away; the more are the chances to outlive the 3-year lookback period and preserve most of the legacy.
New York has an estate tax exemption of $5,930,000 for 2021. It means that if a New York resident passes away having an estate of $5,930,000 in 2021, 100% of the legacy will pass to the heirs without any New York state tax due.
In case the property value is $6 million, there is a $70,000 taxable overdue. Once it has been given away 3 years before the death, no tax due will be imposed on the estate. Otherwise, the heirs may have to face an over $200 tax due.
Gifting the estate away is an efficient and perfectly legal way to mitigate the estate tax due and preserve your legacy for your heirs. However, since the federal gift tax exemption restricts the gift value by $15,000, and New York itself has the 3-year lookback for all gifts made by the decedent, it is essential to start estate planning in advance, especially if you have sufficient property in the state and want to benefit most from the absence of the state gift tax in New York.