Gift-Tax Basics Every Lending Family Should Know

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Annual exclusions, lifetime exemptions, and how forgiveness interacts with both.

Families that lend should understand three numbers: the annual gift-tax exclusion (what you can give each recipient per year with no filing), the lifetime exemption (the larger cumulative amount), and the AFR that keeps a loan from being treated as a gift in the first place.

These interact in useful ways. A loan can fund a need today, and the lender can then forgive part of the balance each year within the annual exclusion - transferring wealth gradually and tax-efficiently. Tracking it all is the hard part, which is precisely what software should handle.