What Is the Gift Tax?
Let me explain the gift tax directly: it's a federal tax that the IRS imposes on you when you transfer money or property to someone else without getting anything of substantial value back. This can include cash, real estate, or other types of property.
For the 2025 tax year, if your gifts go over the lifetime exclusion limit of $13.99 million, you'll face the gift tax, and any gifts above $19,000 need to be reported to the IRS using Form 709.
Key Takeaways
Here's what you need to know upfront: the gift tax is a federal levy on gifts of money or property that surpass a specific lifetime exclusion limit. In 2025, that lifetime limit stands at $13.99 million, up from $13.61 million in 2024. You can give up to $19,000 to someone in 2025 without reporting it to the IRS—anything more requires Form 709, and in 2024, that annual figure was $18,000.
Defining a Gift
A gift, as I see it, is any transfer of value from one person or entity to another with no expectation of return. The IRS includes things like cash, securities such as stocks and bonds, real estate, vehicles, and art as gifts. On the other hand, they exclude educational expenses paid for someone else, medical expenses for another person, gifts to your spouse, and donations to political organizations.
IRS Limits
You should be aware of the two main IRS limits: the annual amount you can give without reporting, which is $19,000 in 2025 (versus $18,000 in 2024), and the lifetime amount before paying gift tax, at $13.99 million in 2025 (up from $13.61 million in 2024).
This annual exclusion is per recipient, so if you have three children, you could give each $19,000 for a total of $57,000 without any IRS reporting. But if you exceed that per child, report each excess via Form 709, attached to your tax return by the following year's deadline, usually April 15.
Gift tax rates depend on the taxable gift's size, ranging from 18% to 40%. For assets like art or stocks where value isn't obvious, use the fair market value to figure your liability.
One important note: there's a 40% generation-skipping transfer tax if you give over the lifetime limit to someone at least 37.5 years younger than you, with that limit being $13.99 million in 2025.
Gift Tax Strategies
Consider gift splitting if you're married and filing jointly—you can give up to $38,000 to one recipient in 2025 without reporting, doubling the tax-free amount. This is on top of exempt tuition payments directly to a grandchild's college.
Another approach is gifting in trust: the exclusion often doesn't cover trust distributions, but you can set up a Crummey trust where the beneficiary has a short window, like 90 days or six months, to withdraw funds. This creates a present interest, making the gift nontaxable up to the amount given.
You can also gift more than the $19,000 annual limit without dipping into your lifetime exemption through 529 college savings plans. Report it as spread over five years on your taxes, filing annually, but avoid additional gifts to the same person during that time.
Examples
Take Susan, who in 2024 gave $100,000 split among five people, $20,000 each. With the annual exclusion at $18,000, $2,000 per gift (total $10,000) wasn't excluded and reduced her lifetime exemption.
Or consider a grandfather who paid $20,000 for his grandchild's tuition and gave $18,000 for rent in 2024—neither is reportable, as tuition is exempt and the rent hits the annual max.
How Much Is the Gift Tax?
The gift tax scales with the gift's size and only applies above the IRS threshold of $13.99 million in 2025. It starts with a flat amount, then adds 18% to 40% on top.
Does the Receiver of a Gift Pay the Gift Tax?
No, you as the giver pay it—the recipient doesn't owe gift tax.
What Is the Lifetime Limit for Gifting Before You Need to Pay the Gift Tax?
In 2025, it's $13.99 million—that's your total lifetime gifting without tax; anything over triggers it.
The Bottom Line
To wrap this up, the gift tax hits when you exceed the lifetime exclusion of $13.99 million in 2025 (or $13.61 million in 2024). The annual reporting threshold is $19,000 in 2025 ($18,000 in 2024), and exemptions apply to spouses and certain other gifts.
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