Gift Tax Guide
You can give up to $18,000 per person per year in 2025 without triggering gift tax or using your lifetime exemption. Gifts above the annual exclusion reduce your federal estate tax exemption but aren't taxed until your lifetime gifts exceed $13.99 million.
The gift tax system in the U.S. is unified with the estate tax. You have a lifetime exemption ($13.99 million in 2025) that covers both lifetime gifts and assets passed at death. The annual exclusion ($18,000 per recipient in 2025) allows you to give that much to any number of people each year without reducing your lifetime exemption. Gifts to spouses and charities are generally unlimited and tax-free.
For example, a married couple with three children can give each child $18,000 per year ($36,000 from both parents combined). Over 10 years, that's $360,000 per child and $1,080,000 total — completely gift-tax-free. They can also give unlimited amounts for tuition or medical expenses paid directly to the educational or medical institution (not reimbursed to the individual).
Gift tax applies to the giver, not the recipient. If you give someone $50,000 in 2025, $18,000 is covered by the annual exclusion and $32,000 uses your lifetime exemption. You file Form 709 (Gift Tax Return) to report the gift, but you owe no tax unless you've used your entire $13.99 million exemption. The recipient pays no income tax on gifts (though income generated by the gifted assets is taxable to the recipient).
Gifting appreciated assets is a powerful wealth transfer strategy. If you gift stock worth $50,000 with a cost basis of $10,000, the recipient's basis is the same $10,000 (carryover basis, not step-up). When they sell, they pay tax on the $40,000 gain — potentially at a lower rate if they're in a lower bracket. This is different from inheritance, where the basis steps up to date-of-death value.
529 Plan Gifting
You can contribute up to $90,000 in a single year to a 529 plan using five-year averaging ($180,000 for married couples). This allows you to front-load five years of annual exclusions at once. For a grandparent wanting to fund a grandchild's education, this is one of the most effective gift strategies, providing both gift tax benefits and tax-free growth for education.
FAQs
Do I need to file a gift tax return?
Form 709 is required if you give any one person more than the annual exclusion ($18,000 for 2025) in a year. You must also file if you're splitting gifts with your spouse (considered made half by each spouse). Even if no tax is due because you haven't used your lifetime exemption, the IRS requires the return to track your exemption usage. Returns are due by April 15 (same as your income tax return).
What is gift splitting?
Gift splitting allows a married couple to treat a gift made by one spouse as made half by each. This effectively doubles the annual exclusion to $36,000 per recipient per year. You don't need to have joint assets — you can split any gift even if the funds come from one spouse's separate account. Both spouses must consent to gift splitting on Form 709.
Can I give gifts to a trust?
Yes, but with caveats. Gifts to a trust are typically considered "future interest" gifts unless the trust gives the beneficiary immediate rights to the assets (Crummey powers). Future interest gifts don't qualify for the annual exclusion and count against your lifetime exemption immediately. Proper trust drafting with Crummey provisions allows gifts to trusts to qualify for the annual exclusion.