It’s always nice to receive monetary gifts from family or friends, but you must consider how this gift impacts your tax return. The gift tax governs how “free” money moves from one party to another. The IRS may consider this amount taxable when you receive an inheritance, monetary gift, significant support from a parent, or an excess payment in exchange for goods or services. Fortunately, the gift tax is relatively simple and does not affect many people. Let’s look at some key points related to the gift tax.
What is a gift tax?
The key point to understand about the gift tax is that the person giving the gift, not the recipient, is responsible for paying it. If you receive a monetary gift or inheritance, you typically don’t need to worry about completing the gift tax form.
This tax is between 18% and 40%. It is triggered when the total value of gifts given to a single recipient exceeds the donor’s annual exclusion amount of $19,000 for 2025 AND the lifetime limit of $13.61 million. Even if the donor does not intend the transfer to be a gift, depending on the circumstances, the IRS may still consider the amount taxable.
How much can you gift someone tax-free?
In a lifetime, you can gift up to $13.61 million worth of property and assets tax-free. The IRS also allows you to gift a certain amount of property or assets tax-free each year – this is known as the annual gift tax exclusion.
As of 2025, the annual exclusion amount was $19,000 per recipient per year ($38,000 for taxpayers filing married filing joint). This means you could give up to $19,000 to as many individuals as you’d like in a year without reporting the gifts to the IRS or paying any gift tax. For 2025, the annual exclusion amount will increase to $19,000 per recipient. Gifts that exceed the annual limit must be documented on your tax return at the end of the year and added to your $13.61 million limit.
Gift tax exclusion limit in 2025 and 2026
The annual gift tax exclusion limit is usually adjusted each year to account for inflation. In 2024, the limit was set at $18,000 per recipient. For 2025, the limit increased to $19,000, and it will stay at $19,000 for gifts given during the 2026 calendar year.
If you exceeded the $19,000 annual exclusion in 2025, you must report your gift to the IRS (assuming it is not a tax-exempt gift, as mentioned above). To do so, you will need to use Form 709.
Again, you must file this form even if you don’t have to pay any taxes for the year. The deadline for filing Form 709 is the same as filing your 1040 tax return, which is typically April 15th.
How the lifetime gift tax exemption works
In addition to the yearly exclusion of $19,000 per individual, there is also a lifetime exclusion to consider. As of tax year 2025 (returns filed in 2026), that exclusion is at $13.99 million. This means you would only have to pay taxes on gifts if you’ve given away more than $13.99 million in your lifetime. If you gifted more than $19,000 in 2025, the amount that exceeds this limit should be documented on Form 709. The amounts reported each year on Form 709 will add up to your lifetime limit.
For example, let’s say you are single and gave a gift of $30,000 to one individual. This gift exceeded the annual exemption by $11,000. Since it exceeded the annual gift tax exclusion, you will need to report this gift to the IRS when filing your 2025 tax return.
As a result of going $11,000 over the annual exclusion, your lifetime exclusion will be reduced by that amount. In future years, gifts you give that exceed the annual exclusion will continue to come off your lifetime exclusion number. Only when you have completely exhausted the lifetime exclusion will you be required to pay tax on all future gifts.
As you can see, most people will not need to pay the gift tax. Unless you plan to give away many millions of dollars, you typically won’t be liable for any additional tax at the end of the year. However, even if you don’t expect to reach the lifetime exclusion number, you still need to report gifts that exceed the annual exclusion.
Note: Contributing to a 529 college plan for a future student is considered gifting. However, a special rule allows you to make a lump-sum payment of up to $95,000 in a single year, but it’s treated as though it was made over a five-year period. You and your spouse can spread these gifts out without the contributions counting towards the lifetime $13.99 million limit. The only catch is, you can’t make any additional gifts to the same recipient without that amount contributing to the lifetime limit.
Gift tax rates
For gifts exceeding the annual gift tax exclusion, the gift tax rates range between 18% and 40%, depending on the total value of taxable gifts made during an individual’s lifetime. The rate is determined based on the cumulative value of taxable gifts exceeding both the annual exclusion and the lifetime gift tax exemption amount.
| Gift Tax Rate | Taxable Amount Exceeding Lifetime Exemption Limit |
| 18% | $0 – $10,000 |
| 20% | $10,001 – $20,000 |
| 22% | $20,001 – $40,000 |
| 24% | $40,001 – $60,000 |
| 26% | $60,001 – $80,000 |
| 28% | $80,001 – $100,000 |
| 30% | $100,001 – $150,000 |
| 32% | $150,001 – $250,000 |
| 34% | $250,001 – $500,000 |
| 37% | $500,001 – $750,000 |
| 39% | $750,001 – $1,000,000 |
| 40% | $1,000,000 and up |
What is considered a taxable gift?
A gift refers to an item of significant value, such as money or property, given by a donor without receiving anything substantial (of comparable value). The IRS states that, generally, any gift is considered taxable. Here are some examples of taxable gifts:
- Cash: Direct transfers of money to someone else
- Property: Giving away real estate, stocks, bonds, vehicles or valuable personal items
- Interest-free loans: If a loan is given without charging interest or with an interest rate below the IRS-established rate, the reduction of interest can be considered a gift
- Forgiveness of debt: If you cancel a debt that someone owes you, the amount forgiven is considered a gift
Non-taxable gifts
In some cases, you can give gifts larger than the annual tax exclusion with no implications on your return. This means you will not pay taxes on the gift, although you may need to document it on your tax return at the end of the year. Here are a few examples of non-taxable gifts:
- Annual exclusion gifts: Gifts within the annual exclusion amount ($19,000 in 2025) are not subject to gift tax.
- Educational or medical expenses: Payments made directly to academic institutions or medical providers for someone else’s tuition or medical expenses are exempt from gift tax.
- Spousal gifts: Gifts given to a spouse who is a U.S. citizen are generally not subject to gift tax.
- Political organization gifts: The gift tax does not apply to donations to a political organization.
- Charitable contributions: Donations to qualified charitable organizations are not considered gifts for tax purposes.
IRS instructions provide more examples of transfers subject to the gift tax, such as digital assets, transferring benefits of an insurance policy, or property settlements in divorce cases.
Gift tax vs. inheritance tax
The gift tax and the estate tax, also known as the inheritance tax, are two different types of taxation, but they are interrelated in the tax code. When you give gifts that reduce your lifetime exemption, it also lowers your inheritance tax exemption. If you plan to pass on a large estate after your death, the portion of your estate that is taxable may increase if you have already used up some of your exclusion by making gifts during your lifetime.
Gift tax FAQs
We’ve got you covered with the most asked questions regarding gift tax limits, gift tax exclusions and more! Get even more answers to your gift tax questions on the IRS site.
How much is gift tax?
Most taxpayers only need to calculate or consider gift tax if they have surpassed the annual limit of $19,000 AND the lifetime limit of $13.99 million. If the limits are exceeded, the gift tax will range between 18% and 40%, depending on the dollar value of the gift.
Who pays gift tax?
The gift tax is paid by the donor. If you receive a monetary gift or inheritance, you do not need to complete the gift tax form. However, there may be exceptions to this rule for some gift and inheritance recipients.
How much money can a person receive as a gift without being taxed?
In general, the person who receives a gift is not responsible for paying any taxes on it. This means that there is no limit to the amount of money that can be received as a gift. However, depending on the amount of money, the person who gives the gift may need to pay a gift tax.
Are gifts tax deductible?
No, gifts are generally not tax deductible for the donor. When you give a gift to an individual, whether cash, property or any other valuable asset, you cannot claim it as a deduction on your income tax return.
Can you avoid gift tax?
The tax code provides generous exclusions and limitations on gift taxes, allowing most taxpayers to avoid paying gift tax. Unless you have exceeded both the 2025 annual limit of $19,000 and the lifetime limit of $13.99 million you will likely not be subject to paying a gift tax.
