by Evin Bachelor

Farm succession planning commonly involves questions about gifting. Here are a few common questions I receive from farmers and landowners related to annual gifting:

How much can I give this year?  A taxpayer may gift up to $18,000 to any other person in 2024 without having to file a gift tax return with the IRS. This means a husband and wife combined may gift each of their children $36,000, and an additional $36,000 to the spouses of their children, if they so wish.

If I receive a gift, do I owe taxes? The transfer alone does not trigger taxes to the recipient. Gift taxes are the liability of the person making the gift. However, the recipient may have tax consequences for the gift if the recipient sells the asset or if the asset produces income (including required distributions).

Can I give more than $18,000 per person this year without paying taxes? Yes, if you still have your Unified Tax Credit available. The Unified Tax Credit, in simple terms, is the value of assets you can gift during your lifetime or leave as an inheritance without triggering gift and estate taxes. In 2024, the United Tax Credit exemption is $13.61 million per person. This exemption is adjusted annually for inflation and is subject to change. Any gift in one tax year greater than the $18,000 annual exclusion is to be reported to the IRS via Form 709. The amount reported is deducted from your lifetime Unified Tax Credit.

Are any types of gifts excluded from the $18,000 annual exclusion? Yes, amounts paid by a taxpayer on behalf of another for tuition to a qualifying education organization for the education or training of that individual, or qualified medical expenses for care provided to that individual are exempt and can be paid in excess of the $18,000 annual exclusion. The IRS treats these as “qualified transfers,” not actually gifts for tax purposes.

What’s the catch on the tuition expense exemption? The payments must be made directly to the “qualifying educational organization” for full-time or part-time tuition. Room, board, books and other non-tuition expenses are not considered qualified transfers and are therefore within the $18,000 annual exclusion. A qualifying educational organization must have a faculty, regular curriculum and regular attendance by students at a consistent location.

What’s the catch on the medical expense exemption?The exemption only covers payments of medical expenses for someone else related to the “diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body or for transportation primarily for and essential to medical care,” and for payment of health insurance premiums. If an insurance provider will pay a medical expense, the transfer is not exempt.

Bachelor is an attorney with Wright and Moore Law based in Delaware, Ohio. Contact him at [email protected] or 740-990-0750 or visit ohiofarmlaw.com.