Gift Tax Exemptions for Donors

When making a donation you may wish to take advantage of one of the following gift tax exemptions so that your donations are not subject to federal gift tax.

Annual Exclusion:  Internal Revenue Code (“IRC”) Section 2503(b) allows each donor to give any number of individuals $13,000 per year, free of gift tax.  If a couple wants to donate, they can each make an annual exclusion gift to an individual for a total of $26,000.  Donors should not make gifts directly to your Ari or Dannie in order to preserve their SSI eligibility.  Instead, donors can make annual exclusion gifts to the medical account under Kathleen, with the understanding that Kathleen will apply those gifts to Ari and Dannie’s medical treatment and related travel & lodging expenses.  Note that a single donor can make annual exclusion gifts to an unlimited number of recipients each year, so making a gift to Dannie and Ari does not impact a donor’s ability to make annual exclusion gifts to their friends and family. 

Lifetime Exemption   Under Section 2505: An individual can make, in the aggregate, lifetime gifts of $1,000,000 (not including any annual exclusion gifts) free from gift tax.  If a donor wishes to give more than $13,000 to an individual in a single tax year, the amount in excess of $13,000 (the annual exclusion amount) may be shielded from gift tax by applying the donor’s unused lifetime gift tax exemption to such gift.  Note, however, that any amount of a donor’s lifetime exemption applied to such a gift will be unavailable for any future gifts that a donor may wish to make. In addition, an individual’s estate tax exemption is reduced by the amount of the lifetime gift tax exemption that they exhaust during

Medical Exclusion:   IRC Section 2503 (e) provides donors with an unlimited gift tax exclusion for amounts paid directly by a donor to a medical provider for another person’s “medical care”.   The exclusion generally applies to amounts paid to a medical provider for:
(1) the diagnosis, cure, mitigation, treatment or prevention of disease;
(2) the purpose of affecting any structure or function of the body; or
(3) transportation primarily for and essential to medical care.

This exclusion will not apply to any donations made directly to an individual. This exclusion might be very helpful as it will allow donors to make direct payments to the medical, lodging or transportation providers. An unlimited amount of such payments are free of gift tax.

Disclaimer: The purpose of the above is to familiarize you with gift tax exemptions and exclusions that may be available to donors and not for the purpose of giving tax advice to your donors.  Each donor should consult with his or her own tax advisor to determine the tax consequences to them of making a donation.