What is the Gift Tax Exclusion and What Does it Mean for Estate Planning in New Jersey?
What you give money (or property) to another person, that can have tax implications. However, that is not true for small gifts. The Internal Revenue Service (IRS) that there is an annual gift tax exclusion. It is adjusted for inflation and it is $19,000 for 2026. Gifts exceeding this amount reduce your lifetime exemption. Here, our New Jersey estate planning attorney provides a guide to the gift tax exclusion and its implications for estate planning.
Understanding the Annual Exclusion (Gift Tax)
Similar to many but not all states, New Jersey does not have a state-level gift tax. Instead, it is the federal gift tax rules that govern transfers by New Jersey residents. The annual exclusion allows a donor to transfer up to $19,000 per donee (recipient) in 2026 without using any of his or her lifetime exemption. That number is adjusted periodically for inflation. The key provision is Internal Revenue Code Section 2503(b). The exclusion applies only to gifts of a present interest. Further, the donee must have an immediate, unrestricted right to use, possess, or enjoy the property for it to qualify. In other words, you can give a loved one (child, grandchild, etc) money or property without losing any of your lifetime estate tax exemption.
What You Need to Know About Interaction with the Lifetime Exemption (Gift Tax Reporting)
What happens if you give a person a larger gift than the exclusion? For example, what happens if you give a child $20,000 in 2026. That is $1,000 above the gift tax exclusion. There are tax implications, but you do not need to pay any immediate tax. Indeed. gifts above the annual exclusion do not result in any immediate tax in most cases.
Instead, the excess of the gift ($1,000 in the aforementioned example) reduces the donor’s unified lifetime exemption under Internal Revenue Code Section 2010. That means that the donor must file a federal gift tax return to report the transfer and track exemption usage. In fact, the filing of a return becomes mandatory for split gifts, transfers to certain trusts, and any gift that exceeds the annual exclusion.
A Deeper Explanation of Gift Splitting and Spousal Transfers
Married couples may elect to “split” gifts. The election treats a gift made by one spouse as made one-half by each spouse for purposes of the annual exclusion. Gift splitting doubles the effective exclusion to $38,000 per donee in 2026. Both spouses must consent on a timely filed gift tax return. Transfers between spouses generally qualify for the unlimited marital deduction, subject to citizenship rules for the recipient spouse. New Jersey repealed its state estate tax, but it still imposes an inheritance tax on certain transfers at death based on the beneficiary’s relationship. Lifetime gifts can remove future appreciation from the taxable estate and may also alter the inheritance tax posture, though gifts made within three years of death can be pulled back into the New Jersey inheritance tax base. A proactive approach to estate planning is a must.
Call Our New Jersey Estate Planning Lawyer Today
At Poulos LoPiccolo PC, our New Jersey estate planning attorney is committed to putting clients. We are a solutions-driven estate planning firm. If you have any questions about the gift tax exclusion, please do not hesitate to contact us today for a completely confidential consultation. We handle estate planning statewide in New Jersey.
Source:
irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances-1
