What Is the Gift Tax?
In plain English
The federal gift tax is a tax on transfers of money or property you make while alive without receiving equal value in return. It is unified with the estate tax, sharing the same lifetime exemption — roughly $13.6 million per individual. The annual gift tax exclusion allows gifts up to $18,000 per recipient per year (2024) without using any of this lifetime exemption.
How Does the Annual Gift Tax Exclusion Work?
You can give up to $18,000 per recipient in 2024 — $36,000 for married couples who split gifts — without filing a gift tax return or reducing your lifetime exemption. If you give more than the annual exclusion to any one person, you must file Form 709 and the excess counts against your lifetime unified estate and gift tax exemption.
What Transfers Are Exempt From Gift Tax?
Gifts to a U.S. citizen spouse are unlimited and fully exempt. Gifts to qualifying charities are deductible. Payments made directly to educational institutions for tuition or directly to medical providers for care on someone's behalf are completely excluded from gift tax with no dollar limit — they do not even count against the annual exclusion.
Does the Recipient of a Gift Pay Tax on It?
No. Gift taxes are the responsibility of the donor, not the recipient. The recipient does not report the gift as income and owes no tax on it. However, when the recipient later sells gifted property, they inherit the donor's cost basis, which may result in capital gains taxes on appreciation that occurred while the donor held the asset.
Frequently asked questions
What happens when I use my gift tax lifetime exemption?
Every dollar of taxable gifts above the annual exclusion reduces your lifetime estate and gift tax exemption dollar-for-dollar. When you die, any remaining exemption shelters your estate from estate tax. If you exhaust the exemption during your life, gifts above it are taxed at rates up to 40% in the year given.
Do I need to file a gift tax return for every gift?
No. You only need to file Form 709 if you give any one person more than the annual exclusion amount in a calendar year, make gifts of future interests, or elect to split gifts with your spouse. Gifts below the annual exclusion per recipient require no reporting.
Keep exploring
Related terms
Estate Tax
The federal estate tax applies to the transfer of wealth from a deceased person's estate to heirs when the estate's value exceeds a high exemption threshold. Most estates owe no federal estate tax.
Charitable Deduction
A charitable deduction allows taxpayers who itemize to deduct donations made to qualifying nonprofit organizations. The deduction reduces taxable income and provides a tax incentive for generosity.
Capital Gains Tax
Capital gains tax applies to profits from selling assets like stocks, real estate, or collectibles. The rate depends on how long you held the asset and your total income.
Tax-Exempt
Tax-exempt refers to income, organizations, or investments that are not subject to taxation. Common examples include municipal bond interest, Roth IRA withdrawals, and nonprofit organizations.
Tax Deduction
A tax deduction reduces your taxable income, lowering the amount of income subject to tax. The actual tax savings depend on your marginal tax bracket.