Gifts are completed cash transfers or other property from one person to another. Gifts include cash, transactions, real estate, vehicles, life insurance cash value, debt forgiveness, financial securities, crypto assets, and virtually any other property of value at the time of the gift. For tax purposes, the gift amount is the item’s fair market value at the time of the gift. Certain gifts, including those made to spouses, charitable or political entities, educational institutions for tuition, or healthcare providers for medical care, may be exempt. There are important rules to understand when making and reporting gifts for tax purposes.

What is the Federal gift tax?

The federal gift tax ranges from 18% to 40% and applies to gifts made throughout the year and throughout your lifetime. Generally, the giver is responsible for paying the tax. However, if the giver dies before the tax is paid, the estate is responsible for paying the tax.

Gift tax limits – What is the maximum annual tax-free gift?

There are two limits to consider when making gifts: the annual gift tax exclusion and the lifetime estate and gift tax exemption. For 2024, the annual gift tax exclusion is $18,000, and the lifetime amount is $13,610,000. These amounts are adjusted annually for inflation. For married taxpayers, the combined 2024 annual limit is $36,000. This means a married couple can give double the annual exclusion amount to each individual and not need to report or pay gift tax.

There are reporting rules for “splitting gifts” for married couples. This means either spouse may make a gift of double the individual exclusion amount, and it remains non-taxable as long as the other spouse agrees to split the gift. A split gift generally requires a gift tax return to be filed.
What if I exceed the annual gift tax limit?

If an individual gives someone more than the annual gift tax exclusion for the year of the gift, the amount over the threshold reduces the lifetime gift tax exclusion amount, which is the amount that can be gifted tax-free over the course of a lifetime.

Note: The Tax Cuts and Jobs Act of 2017 substantially increased the lifetime gift and estate exemption. This increase sunsets on January 1, 2026. Unless Congress makes the change permanent or extends it, the lifetime estate and gift tax exemption will be reduced by half. Estimates indicate a reduction to $7 million for individuals and $14 million for married couples.

How do I report gifts?

Gifts that exceed the annual exclusion amount must be reported on IRS Form 709. As indicated above, until reportable gifts exceed the current lifetime exemption, Form 709 is submitted for record keeping only to allow the IRS to track all lifetime reportable gifts. Generally, no gift tax is due until the lifetime reportable gifts exceed the current lifetime exemption.