- Gift tax may apply to gifts of cash or other property.
- There are several gift tax exclusions, including gifts between spouses.
- Every taxpayer can give an unlimited number of people up to $18,000 annually in 2024 (and $19,000 annually in 2025) without triggering the gift tax.
Federal gift tax may apply when someone gives a gift — of cash or any other type of property — to someone else and receives nothing in return.
In some cases, depending on the gift's size, the use of a property or income from a property could trigger gift taxes. Selling something at a greatly reduced cost compared to its value could also be considered a gift.
When gift tax applies, the giver is generally responsible for paying, though the recipient may agree to pay the taxes in some situations.
2024 gift tax exclusions and limits
Any gifts given to an individual totaling less than $18,000 are not federally taxable for the 2024 tax year. That means you could give up to $18,000 to as many people as you'd like without triggering gift tax or needing to file a gift tax return.
In 2025, the $18,000 cutoff increases to $19,000 annually.
For married couples who live in community property states or couples who live in common law states and elect to split gifts, the amount for 2024 is $36,000. These taxpayers must always file a gift tax return, known as Form 709.
Gifts that are exempt from gift tax
You generally don't need to file a gift tax return for:
- Gifts worth less than the annual gift exclusion amount
- Tuition or medical expenses paid directly to an institution
- Gifts to your spouse
- Gifts to a political organization
- Gifts to organizations deemed exempt by the IRS
- Gifts to a 529 college savings plans in which the contribution is front-loaded and spread over five years
When do you need to file a gift tax return?
If your gift is larger than $18,000 or $36,000 for a married couple in 2024 and doesn't meet one of the exceptions, then you need to file Form 709 to report it.
Married couples cannot file a joint gift tax return even if gifts are split. Each spouse should file a separate return if they make any taxable gifts that exceed the annual exclusion, even if they won't have to pay taxes on them.
In 2024, individual taxpayers have a $13.61 million lifetime exemption, up from $12.92 million in 2023. The amount of the gift that exceeds the annual limit each year reduces your lifetime exemption amount. The gift tax return is filed as a record of that reduction.
Gifts of real estate, vehicles, cash, stock, or other valuable investments are situations where you may exceed the annual exclusion. Filing Form 709 also helps you establish the cost basis in the gifted property, which will be necessary to determine if you have a gain or loss if you dispose of it in the future.
If you do trigger the gift tax, rates start at 18% and go up in increments based on the size of the gift above the annual $18,000 limit. The highest gift tax rate is 40% for taxable gifts over $1 million.
Note: In 2026, the lifetime exemption amount will revert to its pre-2018 level of $5 million, adjusted for inflation, unless Congress passes a new tax law.
Gift tax example
A successful businesswoman gives her niece a $36,000 car for college graduation. What a lucky niece! In this case, a gift tax return would need to be filed, as it is above the $18,000 annual exclusion.
There probably won't be any gift taxes due. Chances are, the woman hasn't used up her lifetime exemption. If she had used up her lifetime exemption, she would pay an 18% tax rate on the first $10,000 and a 20% rate on the next $8,000. That's a total of $3,400 in gift tax.
Strategies to minimize gift tax
Utilize the annual exclusion
If you prefer to make gifts directly to friends and family (other than your spouse), be sure to stay at or below the $18,000 annual limit. If you give more than that to any recipient, you will be required to file a gift tax return to report your reduction in your lifetime exemption.
Gift splitting
Married couples can take advantage of gift splitting if they file a joint tax return, effectively doubling their annual gift limit to $36,000.
For example, say a married couple gifts $35,000 cash to their adult daughter for her thirtieth birthday. In this case, the couple can take advantage of the total gift tax exclusion afforded for spouses and won't owe any gift tax, but they will still need to file Form 709 with their tax return.
Gift directly to institutions
One way to bypass the annual gift limit is to give directly to medical or educational institutions on behalf of another person. For example, if you want to pay for your grandchild's college tuition but the annual amount far exceeds $18,000, you can pay the school directly and avoid having to file a gift tax return. Note that expenses paid for books, supplies, and room and board are not eligible.
Consult a tax professional
Gift and estate taxes can get complicated at higher levels. If you're concerned about triggering gift taxes or minimizing tax on your estate, consult a tax advisor.
FAQs on the gift tax
Do I need to pay taxes on gifts I receive?
No, you don't need to pay taxes on gifts you receive. If gift tax is due, it is the giver's responsibility to pay.
What is the gift tax rate?
Gift taxes are progressive, just like income taxes. Rates range from 18% to 40%, with the top bracket applying to taxable gifts of $1 million or more.
How does the gift tax affect my estate tax?
Gifts exceeding the annual $18,000 per person limit, or $36,000 for married couples, will reduce the giver's lifetime exemption amount. For example, if a single filer gives $25,000 cash to a friend, $7,000 will be considered taxable. But since the giver has a $13,610,000 million lifetime exemption, the $7,000 gets subtracted from that amount, leaving them with an exemption of $13,603,000. If they make no more gifts until they die, the exemption amount will fully apply to their estate.
