What Are the Gift Tax Limits in Washington & Oregon?
When your estate is passed on to your beneficiaries, the government takes a cut. This is known as the estate tax (or, less affectionately, the “death tax”). The estate tax is levied when the estate is being passed along in probate. Each state has an estate tax threshold, which manifests as an exemption for estates valued at less than the threshold. One way to get around the estate tax is to give away assets to families and friends while still alive so that the value of the estate by the time of probate is lower. Understanding this loophole, the government imposes a gift tax on gifts above a certain threshold. Read on to learn about the gift and estate tax limits in Washington and Oregon. For seasoned advice on planning your estate, call a dedicated Portland and Vancouver estate planning attorney.
Washington and Oregon Estate and Gift Tax Thresholds
The estate tax is calculated based on the fair market value of all assets possessed at the time of death (the “gross estate”), less the exclusion amount and certain other estate tax deductions (the “taxable estate”). Property includes all assets–cash, real estate, business interests, etc.
Washington’s estate tax has a threshold of $2.193 million for 2022, which has remained static since 2018. A tax is levied on the value of an individual’s estate that exceeds the exclusion amount. The tax, which ranges from 10 to 20%, is progressive, so the rates go up as the value of the estate gets higher. An estate worth less than $2.193 million will be entirely excluded from the estate tax, while an estate worth more will be taxed only on the value over that limit.
Similarly, Oregon has a graduated estate tax rate of 10-16%, rising as the value of the estate increases. Oregon has a $1 million estate tax exemption. Estates worth less than $1 million total are entirely exempt from the estate tax, while the amounts in excess of $1 million on higher-value estates will be subject to the tax.
To reduce the taxable estate, individuals can give out gifts to friends, families, and others while still alive. Neither Washington State nor Oregon has a state-level gift tax. That means that you can make gifts of any size in a given year, to anyone, without incurring a tax at the state level. The federal government, however, is another story.
The Federal Gift and Estate Tax Limit
The federal government levies its own estate taxes. IRS estate tax rates increase up to 40%, depending upon the value of the estate. The IRS currently sets a $12.06 million federal estate tax exemption for individuals (double that for married couples). The exemption increases each year with inflation. As with the state-level estate taxes, that means the IRS will not tax the first $12.06 million of an estate.
The IRS does, however, have a gift tax. The gift tax works in tandem with the estate tax. The gift tax exemption is currently $15,000 per year, per recipient. Annual gifts of less than $15,000 do not require the filing of a gift tax return. If you give more than $15,000 to one person in a given year, you (the giver) are subject to the gift tax. You can either pay the tax at the time in your next tax return, or you can choose to defer the tax. If you defer, you are essentially using part of your $12.06 million estate tax exemption.
There are many exceptions to the gift tax. First of all, the exclusion applies on a per-recipient basis. You can technically give up to $15,000 to as many different recipients as you like without triggering the gift tax. Secondly, certain recipients are exempt from the tax. The tax does not apply to gifts made to your spouse, charitable organizations, or qualifying political organizations. The gift tax does not apply to gifts made to cover another person’s educational or medical expenses, provided they are made directly to the educational institution or medical provider (rather than to the individual). Talk to an estate planning attorney to discuss how to maximize your gift tax exemptions.
Working with a qualified estate planning professional can help you establish a plan that works for you, your spouse, and the rest of your family. We’ll provide you with thorough estate planning guidance to ensure that your affairs are in order and your loved ones are protected. Contact the experienced, comprehensive Washington and Oregon estate planning attorney John Lutgens in Vancouver at 360-693-2119.