As a hospitality industry business owner, it’s crucial to understand the importance of gifting in 2025. The current lifetime gifting exclusion is set to revert to pre-TCJA (Tax Cuts and Jobs Act) levels, which are significantly lower. Without an extension of the TCJA provisions from the White House, the extended lifetime giving maximums will sunset. This means the opportunity to transfer up to $13.99 million of cash or property tax-free during an owner’s lifetime may be reduced substantially. It’s essential for hospitality business owners to be aware of the sunsetting TCJA provisions beginning in 2026 because the value of real property held by entities and individuals has increased significantly in recent years.
Taking advantage of the current higher exclusion limits before they potentially decrease can provide significant tax savings and help secure a financial legacy.
Annual Exclusion and Gift Splitting
For 2025, the annual exclusion for gifts is $19,000 per recipient. This means an individual can give up to $19,000 to any number of people each year without incurring gift tax. Key points to remember:
- Annual Exclusion: $19,000 per recipient.
- Gift Splitting: Married couples can elect to split gifts, effectively doubling the annual exclusion to $38,000 per recipient.
- Benefit: Reduces the taxable portion of gifts and moves assets away from the taxable estate upon death to secure valuations and reduce the administrative burden on family and friends.
Please refer to the sections below for more detailed information on maximizing the lifetime exemption and spousal gift splitting.
Lifetime Giving Exclusion and Unified Credit
For 2025, the lifetime giving exclusion, adjusted for inflation, is $13.99 million. This exclusion is unified with the estate tax credit, meaning the total amount that can be transferred during a lifetime or at death without incurring federal estate or gift taxes is $13.99 million. Important details include:
- Lifetime Giving Exclusion: $13,990,000
- Unified Credit: These credits offset gift tax liability up to the exclusion amount.
- Exceeding the Exclusion: Gifts exceeding this limit will reduce the amount available for estate tax purposes and may incur gift tax using the following stated rates:
The gift tax rate for 2025 is based on the value of the taxable gift and can range from 18% to 40%. The rate increases progressively with the value of the gift, ranging from 18% on gifts of up to $10,000 to 40% on gifts over $1 million.
Impact on Hospitality Industry Business Owners
For owners in the hospitality industry, such as hotels and motels, the rising value of property can significantly impact gift tax planning. Key considerations:
- Property Value: Rising property values can affect gift tax planning, including the ability to gift property and entity interests tax-free under the current sunsetting TCJA provisions.
- Taxable Transfers: Transferring interests in properties to close family members can trigger a taxable event if not done correctly.
- Accurate Valuation: Valuations of property assist in avoiding unexpected tax liabilities.
- Professional Consultation: Seek advice from a tax professional to mitigate risks and ensure compliance with IRS regulations.
How to File a Gift Tax Return
To report gifts exceeding the annual exclusion or those using part of the lifetime exemption, IRS Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return must be filed. Key points for filing include:
- Form: IRS Form 709.
- Deadline: Generally, April 15th, aligning with the personal tax return deadline.
- Extension: Requesting an extension for a personal income tax return also extends the deadline for Form 709. No specific or separate extension is needed for the gift tax return.
Maximizing Lifetime Giving Exclusions and Reducing Estate Values
Here are some strategies to maximize the lifetime giving exclusion:
- Gift Splitting with a Spouse: Double the annual exclusion by electing to split gifts with the spouse.
- Gifting Interests into Trusts: Consider using trusts such as Spousal Lifetime Access Trusts (SLATs) to transfer assets while retaining some control and benefits.
- Annual Exclusion Gifts: Make use of the annual exclusion to give gifts up to $19,000 per recipient annually.
- Leveraging Valuation Discounts: For closely held business interests, consider valuation discounts for lack of marketability or control to reduce the taxable value of the gift.
- Charitable Contributions: Gifts to qualified charities can reduce the taxable estate and provide immediate tax benefits.
- Educational and Medical Expenses: Pay tuition or medical expenses for individuals directly to the institution or providers, which are not subject to gift tax.
- Family Limited Partnerships (FLPs): Transfer interests in a family business to family members at potentially discounted value(s).
- Grantor Retained Annuity Trusts (GRATs): Transfer assets to a trust while retaining an annuity interest, potentially reducing the taxable value of the gift.
- Qualified Personal Residence Trusts (QPRTs): Transfer a personal residence to a trust while retaining the right to live there for a specified period.
- Irrevocable Life Insurance Trusts (ILITs): Transfer life insurance policies to a trust to remove them from your taxable estate.
Authors: Stephen Vinarub, CPA | [email protected] and Lena Combs, CPA, CGMA, Partner and Hospitality Practice Leader | [email protected]
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For more information on this topic, please contact a member of Withum’s Hospitality Services Team.
