What's the Difference Between the Annual Gift Tax Exclusion and the Lifetime Gift Tax Exemption?

The gift tax has two separate limits that work together — one resets every year, and one is a lifetime cap. The annual gift tax exclusion lets you give up to $18,000 per recipient in 2024 without any tax consequences or paperwork — these gifts don't count against anything. If you give more than $18,000 to any one person in a year, the excess is counted against your lifetime gift and estate tax exemption, which is $13.61 million per person in 2024. You only actually owe gift tax if you exhaust your entire lifetime exemption, which very few people do. The lifetime exemption is shared between gifts made during life and assets left at death, so every dollar of lifetime taxable gifts reduces the amount that can pass estate-tax-free when you die.