You Take a Friend on Your Yacht. Is It a Taxable Gift?

Supreme Court Justice Clarence Thomas has recently found himself in hot water over benefits received from his longtime friend, Dallas billionaire, and political donor Harlan Crow. The controversy has given rise to important questions about judicial ethics and disclosures, and begs the question, is generosity between friends taxable?

The U.S. gift tax was established in 1924 to prevent wealthy Americans from minimizing taxable estates by transferring assets to others before death. This year, the combined gift-and-estate-tax exemption is $12.92 million per individual or $25.84 million per married couple. 

However, there is a gift-tax exemption in addition to the lifetime exemption, allowing a person to make annual tax-free gifts to another individual. The 2023 limit is $17,000 per giver, per recipient, and as seen in Justice Thomas’ case, experts aim to answer when hosting a friend on an expensive vacation becomes taxable.

The answer is whether or not the giver is present. In the yacht scenario, if the giver of the boat cruise is present, the trip looks more like a party than a gift despite the fact that the price of hosting said guest exceeds $17,000.

For more information see Laura Saunders “You Take a Friend on Your Yacht. Is It a Taxable Gift?” The Wall Street Journal, May 19, 2023.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

https://lawprofessors.typepad.com/trusts_estates_prof/2023/05/you-take-a-friend-on-your-yacht-is-it-a-taxable-gift.html