Annual Exclusion Law and Legal Definition

Annual exclusion is the maximum amount that a person can give each year as a gift without paying a gift tax. There is no limit on the number of gifts a person can make to different persons in a year. In order to qualify for exclusion, the gift must be of a "present interest," meaning that the recipient can make use of the gift immediately, and the donor must not have any control over the asset after it is given. The purpose of the annual exclusion is both to serve as an estate-planning mechanism and to eliminate the administrative inconvenience of taxing relatively small gifts. The law relating to annual exclusion is codified in 26 USCS § 2503.

Annual exclusion is also known as annual gift-tax exclusion.