The income thresholds that trigger some potentially large taxes are changing for 2024.
The IRS is making the changes, known as cost-of-living adjustments, to account for inflation. The moves will mostly impact wealthy taxpayers, although some folks in the middle class also likely will benefit.
Following are definitions of three key types of taxes and explanations of how they are changing for the 2024 tax year, which is the one for which your tax return is due by April 2025.
What is the gift tax?
When you give a certain amount of money or other property to someone, it is considered a gift — whether or not you intended it that way. Such gifts are subject to a tax. Here is how the IRS defines the gift tax:
“The gift tax applies to the transfer by gift of any type of property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.”
Typically, the person giving the “gift” is responsible for paying the tax.
There are several situations to which the gift tax does not apply, including:
- Gifts to a spouse
- Gifts that pay the tuition or medical expenses of someone
- Gifts to a political organization intended for its use
The gift tax exclusion
In 2024, you can give a little more without triggering the gift tax. The new limit is $18,000, up from $17,000 for 2023.
So, until the gifts you give someone exceed that limit, you will not owe any federal gift taxes. The limit applies per recipient. So, for instance, you can give three gifts of $18,000 to three separate people in 2024 and not trigger the tax.
What is the estate tax?
The estate tax, often disparaged as the “death tax,” is a levy applied to property that is transferred from you to someone else after your death.
It only applies to multimillion-dollar estates, which means very few people pay it. However, for those who are rich and intend to pass down wealth to loved ones, the estate tax is among the most irksome taxes in the federal code.
The estate tax exclusion
The estate tax exclusion is rising to $13.61 million for 2024, up from $12.92 million for 2023. That means that until your estate exceeds that limit, you will not owe any federal estate taxes.
Even if you escape paying the federal government, your heirs will need to watch out for the tax collectors in the state in which you lived and died. Many states have their own estate taxes, as we note in “17 States With Inheritance or Estate Taxes (and D.C.).”
What are capital gains taxes?
Chances are good that you are sitting on a small mountain of capital assets. These are things that you own either for personal use or for the purposes of investment. Among the many examples of capital assets are:
- A home
- Household furnishings
- Stocks and bonds
When you sell one of these assets, you generally owe a capital gains tax on “the difference between the adjusted basis in the asset and the amount you realized from the sale,” according to the IRS. In most cases, this “adjusted basis” is the price you paid for the item.
Generally, you must hold a capital asset for more than one year before selling to qualify for the long-term capital gains rate. That rate is just 15% for most people, although it is higher in some situations, particularly for those whose taxable incomes cross specific thresholds.
If you sell a capital asset before one year, you are stuck with a short-term capital gain, and you usually pay much higher taxes, depending on your income.
The capital gains rate income thresholds
For 2024, the income thresholds for the 0%, 15% and 20% capital gains rates have increased. That means you will be able to earn more money before the capital gains tax rate affects you.
Income thresholds for long-term capital gains rates will be as follows, depending on your tax-filing status:
Married filing jointly or qualifying surviving spouse
- 0% — taxable income up to $94,050
- 15% — taxable income from $94,051 to $583,750
- 20% — taxable income of $583,751 or higher
Married filing separately
- 0% — taxable income up to $47,025
- 15% — taxable income from $47,026 to $291,850
- 20% — taxable income of $291,851 or higher
Head of household
- 0% — taxable income up to $63,000
- 15% — taxable income from $63,001 to $551,350
- 20% — taxable income of $551,351 or higher
Single
- 0% — taxable income up to $47,025
- 15% — taxable income from $47,026 to $518,900
- 20% — taxable income of $518,901 or higher
