Virginia Gift Tax Guide [Step by Step]

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Paul Sundin, CPA

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The 2006 General Assembly House Bill 5018 has repealed the estate and gift taxes in Virginia. It means that today most Virginia can make gifts to their friends and family members without having to bother about taxation consequences.

However, federal gift taxes are still applicable and remain in action for certain gifts no matter where you live.

Let’s go over state and federal gift taxation principles to understand what kind of gifts and how often Virginia residents can make without affecting their lifetime exemption.

What is a gift tax?

Technically a gift tax applies to a transaction that you make without expecting any payback or a “nominal” fee. For example, “selling” a house to your children for $1 is a gift.

The gift tax rates may vary between 18% and 40%, coming severe concern for those who make those gifts as they usually are responsible for the tax due.

However, while Virginia does not impose local gift taxes on residents, deals like the house sale mentioned before become subject to the federal gift tax.

Nevertheless, the federal gift tax exclusion allows people to be more flexible with their estate planning and make sufficient gifts without taxation consequence or effect on their lifetime exemption.

What is gift tax exclusion?

Technically, the government has set that each citizen can make up to $15,000-worth gifts annually to as many people as they wish.

Not being crucial for most taxpayers, this frame allows those with sufficient estate to ease their federal estate tax burden significantly.

For example, having two children, you can easily give away $30,000-worth estate every year. Once you are married, the sum doubles.

Money on an abacus

Moreover, there is a possibility to “split” costly gifts between two spouses and make a joint present of $30,000 to one person without consequences to the lifetime exemption.

It is important to remember that gifts made between two spouses who are both US citizens are not “taxable.” The same is valid for paying for someone’s medical treatment or education once the money goes directly to the institution. You also won’t have to file gifts made to IRS-approved charities.

 As you see, even being a Virginia resident, you can still make a “taxable” gift. However, such a scenario is relevant for owners of sufficient estate only. IRS may start collecting the gift tax from you only if you exceed the annual $15,000 gift tax exclusion per one person or your lifetime exemption, which is about $11.7 million by 2021.

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