The federal gift tax starts at 40% on gifts over the annual limit

The federal gift tax is a tax on money or property you give to another person during your lifetime. For 2024, you can give up to $18,000 per person per year without triggering the tax. If you give more than that in a single year to one person, you owe tax on the amount over the limit at a rate of 40%.

The tax applies to the giver, not the receiver. If you give your adult child $25,000 in one year, you owe tax on the $7,000 that exceeds the annual limit. Your child does not owe anything — you do.

The annual limit increases most years. In 2023 it was $17,000 per person. The IRS adjusts it for inflation, so check the current year's limit before making large gifts.

Key Takeaways

  • You can give $18,000 per person per year in 2024 without owing gift tax, and this limit resets on January 1 each year.
  • Gifts to spouses and to charities do not count toward the limit and never trigger gift tax.
  • If you give more than the annual limit to one person, you report it on Form 709 but may not owe tax when ready because of the lifetime exemption.
  • The lifetime exemption — the total you can give away tax-free over your whole life — is $13.61 million in 2024, but this amount is set to drop in 2026.
  • State gift taxes exist in only a few states and have their own limits and rules separate from federal tax.

How the annual limit works

The $18,000 annual exclusion applies to each person you give to. If you have three adult children and give each of them $18,000 in the same year, you owe no gift tax because each gift is within the limit. If you give one child $36,000, you are $18,000 over the limit and must report it.

The limit resets on January 1. A gift on December 31 and another gift on January 1 of the next year count toward two separate years, so you can give $18,000 twice without triggering tax.

Married couples can combine their limits. If you are married, you and your spouse together can give $36,000 per person per year. Your spouse does not have to agree to this — the law allows it automatically — but both of you must file Form 709 to report it.

Gifts that do not count toward the limit

Certain gifts are never subject to gift tax and do not count toward your annual limit. Gifts to your spouse have no limit at all, as long as your spouse is a U.S. citizen. You can give your spouse $1 million in a single year and owe no tax.

Gifts to registered charities also have no limit and do not count. If you donate $50,000 to a nonprofit organization, that is not a taxable gift.

Payments made directly to a school or hospital on behalf of someone else do not count either. If you pay your grandchild's college tuition directly to the university, that payment is not a gift for tax purposes, even if the amount is large. The same applies to medical bills paid directly to a provider. You must pay the school or hospital directly — if you give money to your grandchild and they pay the tuition, it counts as a gift.

What happens when you exceed the annual limit

If you give more than $18,000 to one person in a year, you must file Form 709 (the gift tax return) with the IRS. This does not mean you owe tax when ready. Instead, the excess amount is subtracted from your lifetime exemption.

Your lifetime exemption is the total amount you can give away tax-free over your entire life. In 2024, that amount is $13.61 million. If you give away $25,000 to your child in 2024, you report the $7,000 excess on Form 709, and your lifetime exemption drops to $13.603 million. You still owe no tax.

You only owe gift tax if you exceed your lifetime exemption entirely. For most people, this never happens. The lifetime exemption is so large that only wealthy individuals who make very large gifts or leave large estates trigger the 40% tax.

The lifetime exemption and what changes in 2026

The lifetime exemption is currently $13.61 million per person (or $27.22 million for a married couple). This amount is temporary. Under current law, it is set to drop to roughly $7 million per person on January 1, 2026, unless Congress changes the law before then.

If you are planning to give away a large amount of money or property, the timing matters. Some people with substantial wealth choose to make large gifts before 2026 to use the higher exemption. Others wait to see whether Congress extends the higher amount. There is no penalty for waiting, but there is also no way to know what Congress will do.

The annual limit ($18,000 in 2024) is separate from the lifetime exemption and is not set to change in 2026. Even after the lifetime exemption drops, you will still be able to give $18,000 per person per year without any tax consequence.

State gift taxes

Most states do not have a gift tax. Only a handful — Connecticut, Delaware, Illinois, Louisiana, Mississippi, New York, North Carolina, and Tennessee — have imposed or are imposing a gift tax, and the rules vary widely by state.

If you live in one of these states, you may owe state gift tax in addition to federal tax. The state limits and rates are usually different from the federal rules. Connecticut, for example, has a $6,000 annual limit and a 3.5% to 6.5% tax rate. You would need to check your state's tax authority website for the exact rules that explore to you.

If you live in a state without a gift tax, you owe no state gift tax regardless of how much you give away. Federal gift tax is the only concern.

Reporting gifts on your tax return

If you stay within the $18,000 annual limit per person, you do not file anything. No form, no report. The gift is straightforward not taxable.

If you exceed the limit, you file Form 709 with your federal income tax return (or separately if you do not file an income tax return that year). Form 709 is available on the IRS website. You list each gift that exceeded the annual limit, the amount, and the recipient. The form calculates how much of your lifetime exemption you have used.

You do not owe tax at the time you file Form 709 unless you have already used up your entire lifetime exemption. The form is a report, not a bill. Keep a copy for your records.

Frequently Asked Questions

Do I owe gift tax if I give money to my child?

Not if the gift is $18,000 or less per year. You can give your child $18,000 in 2024 with no tax consequence. If you give $25,000, you report the $7,000 excess on Form 709, but you still owe no tax because it comes out of your lifetime exemption. You only owe tax if you have already used up your $13.61 million lifetime exemption.

What if I give a gift and the recipient sells it later — do they owe tax?

The recipient does not owe gift tax. Gift tax is paid by the giver, not the receiver. If the recipient later sells the gift and makes a profit, they may owe capital gains tax on the profit, but that is a separate tax and has nothing to do with the gift tax.

Does a loan to a family member count as a gift?

A loan is not a gift if there is a written agreement, an interest rate (even a low one), and a repayment schedule. If you lend money to a family member with no written agreement and no expectation of repayment, the IRS may treat it as a gift. To be safe, put any loan in writing and charge at least the IRS minimum interest rate, which changes monthly.

Can I give away my entire lifetime exemption before 2026?

Yes. If you want to use the $13.61 million lifetime exemption before it drops in 2026, you can make large gifts now and file Form 709 to report them. You will owe no tax as long as the total does not exceed $13.61 million. After 2026, your remaining exemption will be whatever amount Congress sets, which is likely to be lower.

Do I owe gift tax on gifts from other people?

No. The gift tax is paid by the person giving the gift, never by the person receiving it. If someone gives you money or property, you owe no tax on it. You do not have to report it to the IRS.