What Is the Gift Tax?
The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. This tax applies whether or not you intend to make the transfer as a gift.
What Counts as a Gift for Tax Purposes?
You have made a taxable gift if:
- you give money or other assets without expecting repayment
- You let someone to use your property for free or receive the income from the property
- If you sell something at less than its fair market value
- you make an interest-free or below market interest loan
What transfers are Not subject to the Gift Tax?
Four types of transfers are not subject to the gift tax. These are:
- Transfers to political organizations,
- Transfers to certain exempt organizations,
- Payments that qualify for the educational exclusion, and
- Payments that qualify for the medical exclusion.
Besides, transfers to your spouse or dependents are generally exempt to the gift tax.
What Is the Annual Gift Tax Exclusion?
The annual gift tax exclusion is a set of dollar amount that you may give to someone without reporting it to the IRS. If you give away more than the annual exclusion amount in cash or assets to any one person during the tax year, you will need to file a gift tax return.
| Year | Annual gift Exclusion (Nonspouse) |
Annual gift exclusion (nonresident spouse) |
Annual gift exclusion (Spouse resident) |
Applicable Exclusion Amount |
| 2015 |
14,000 |
147,000 |
Unlimited |
5,430,000 |
| 2016 |
14,000 |
148,000 |
Unlimited |
5,450,000 |
| 2017 |
14,000 |
149,000 |
Unlimited |
5,490,000 |
| 2018 |
15,000 |
152,000 |
Unlimited |
11,180,000 |
| 2019 |
15,000 |
155,000 |
Unlimited |
11,400,000 |
| 2020 |
15,000 |
157,000 |
Unlimited |
11,580,000 |
| 2021 |
15,000 |
159,000 |
Unlimited |
11,700,000 |
| 2022 |
16,000 |
164,000 |
unlimited |
12,060,000 |
| 2023 |
17,000 |
175,000 |
unlimited |
12,920,000 |
| 2024 |
18,000 |
185,000 |
unlimited |
13,610,000 |
| 2025 |
19,000 |
190,000 |
unlimited |
13,990,000 |
How does the gift tax exclusion work?
- The annual exclusion is per recipient, not the sum total of all your gifts. That means, for example, that you could gift $19,000 to your cousin, another $19,000 to a friend, another $19,000 to a neighbor, and so on in 2025 without having to file a gift tax return in 2026. There’s no limit to how many people you can gift to each year.
- If you’re married, you and your spouse could each give away $19,000 in 2025 without needing to file a gift tax return in 2026.
- If you want to combine your annual exclusions to give someone $38,000, you can choose to take advantage of “gift splitting”.
- Unlimited Gift exclusion between US resident spouse The unlimited gift exclusion to a spouse, also known as the unlimited marital deduction, allows a person to transfer any amount of assets to their spouse during life or at death without incurring federal estate or gift tax.
- Limited annual gift exclusion to the Nonresident Spouse When a S. citizen or resident makes a gift to their spouse who is not a U.S. citizen, the unlimited marital deduction generally available for gifts to a U.S. citizen spouse does not apply. Instead, there is a limited annual exclusion specifically for gifts to a non-citizen spouse.
What If You Exceed the Annual Exclusion?
Exceeding the annual gift tax exclusion doesn’t mean you have to pay a gift tax. The amount of your contribution that exceeds the annual limit will then be subtracted from your lifetime gift tax exclusion. No immediate tax is due unless you exceed that lifetime limit.
What Is the Lifetime Gift Tax Exemption?
The lifetime gift tax exemption is the amount of money or value of assets an individual can give away during their lifetime without incurring a federal gift tax. This exemption is combined with the estate tax exemption, meaning any amount used during your lifetime for gifting will reduce the amount you can transfer tax-free upon your death.
For 2025, the lifetime gift tax exemption is $13.99 million, up from $13.61 million in 2024. This means that you can give up to $13.99 million in gifts throughout your life without ever having to pay gift tax on it. For married couples, both spouses get the $13.99 million exemption. This means that if you are married, you and your spouse could give away a total of $27.98 million before paying the gift tax.
What is the gift tax rate?
The U.S. federal gift tax rates are progressive, ranging from 18% to a top rate of 40%. This means the rate increases as the amount of the gift exceeding the lifetime exclusion limit increases.
|
Taxable amount |
Rate of tax |
|
up to $10,000 |
18% |
|
$10,001 to $20,000 |
20% |
|
$20,001 to $40,000 |
22% |
|
$40,001 to $60,000 |
24% |
|
$60,001 to $80,000 |
26% |
|
$80,001 to $100,000 |
28% |
|
$100,001 to $150,000 |
30% |
|
$150,001 to $250,000 |
32% |
|
$250,001 to $500,000 |
34% |
|
$500,001 to $750,000 |
37% |
|
$750,001 to $1,000,000 |
39% |
| $1,000,000 and over |
40% |
Summary
- Certain gifts, such as medical or tuition payments made directly, are tax-free
- You can give up to the annual exclusion amount per person without triggering gift tax.
- a married couple are allowed to split gifts to double the gift amount to an individual without being subject to a gift tax.
- Any gifts over the annual exclusion must be reported using IRS Form 709.
- Excess gifts they count against the lifetime exemption amount without immediate tax due.
- Gift tax rate from 18-40% applies on the amount over the lifetime exemption.