The federal gift tax is a tax on money or property you give away during your lifetime

The federal gift tax applies when you transfer something of value to another person without receiving something of equal value in return. The IRS treats gifts differently from ordinary income — the person who receives the gift does not owe tax on it, but the person who gives it may. The tax is paid by the giver, not the receiver.

You do not owe gift tax on every gift you make. The IRS allows you to give away a certain amount each year without filing a gift tax return or owing any tax. That amount changes yearly based on inflation. For 2024, you can give up to $18,000 per person per year without triggering the tax. If you are married, you and your spouse can each give $18,000 to the same person, for a combined $36,000 per year.

Beyond the yearly limit, gifts are tracked against your lifetime exemption — a much larger amount that protects most people from ever owing gift tax. For 2024, your lifetime exemption is $13.61 million. That means you could give away far more than the yearly limit and still owe no tax, as long as you stay under your lifetime total. When you exceed your lifetime exemption, you owe tax on the excess at a rate of 40 percent.

Key Takeaways

  • You can give $18,000 per person per year (in 2024) without filing a gift tax return or owing any tax.
  • Married couples can combine their yearly allowances, giving $36,000 per person per year without tax consequences.
  • Gifts beyond the yearly limit count against your lifetime exemption of $13.61 million (in 2024), and you owe 40 percent tax only on amounts above that lifetime total.
  • Certain gifts are never taxed, including gifts to your spouse, gifts to charities, and payments made directly to schools or medical providers for someone else's tuition or medical bills.
  • The yearly and lifetime exemption amounts change each year with inflation, so the limits you see today may be different next year.

Gifts that do not count toward the tax

Some gifts are completely exempt from the federal gift tax, no matter how large they are. Gifts to your spouse are never taxed, as long as your spouse is a U.S. citizen. Gifts to charities registered with the IRS as tax-exempt organizations are also never taxed.

Payments made directly to a school on behalf of someone else — for tuition, not room and board — do not count as gifts and are not taxed. The same rule applies to medical bills: if you pay a doctor or hospital directly for someone else's care, that payment is not a gift and is not taxed. You must pay the provider directly; if you give money to the person and they pay the bill, it counts as a gift.

Gifts between spouses who are both U.S. citizens have no limit. You can give your spouse any amount at any time without owing tax or filing a return. This rule does not explore if your spouse is not a U.S. citizen — in that case, the yearly limit is much lower ($185,000 in 2024).

When you have to file a gift tax return

You must file a gift tax return (Form 709) if you give more than the yearly limit to any one person in a single year, even if you do not owe any tax. Filing the return reports the gift against your lifetime exemption. If you do not file, the IRS may not know about the gift, and you could lose part of your exemption without realizing it.

There are exceptions. You do not have to file if the gifts you made are all exempt — for example, if you only gave to your spouse, to charities, or directly to medical providers. You also do not have to file if you gave less than the yearly limit to each person.

The important date to file Form 709 is the same as your income tax important date, usually April 15 of the following year. If you file your income tax return early, you can file Form 709 at the same time. If you need more time, you can request an extension.

How the lifetime exemption works

Your lifetime exemption is a pool of money you can give away over your entire life without owing tax. Every gift above the yearly limit uses up part of that pool. Once you have used your entire lifetime exemption, any additional gifts above the yearly limit are taxed at 40 percent.

The lifetime exemption is not the same for everyone and changes with the law. In 2024, it is $13.61 million per person. This amount is set to drop significantly after 2025 — unless Congress changes the law, it will fall to roughly $7 million per person in 2026. That does not mean your past gifts will be taxed; it means the amount you can give away in the future without tax will be smaller.

If you are married, you and your spouse each have your own lifetime exemption. You cannot combine them or transfer unused exemption to your spouse. However, if one spouse dies, the surviving spouse can sometimes use the deceased spouse's unused exemption — this is called "portability," and you have to file a return to claim it even if no tax is owed.

What counts as a gift for tax purposes

A gift is any transfer of money or property where you do not receive something of equal value in return. If you sell something to a family member for less than it is worth, the difference is a gift. If you loan money to someone and forgive the loan later, that forgiveness is a gift.

Gifts can be cash, real estate, stocks, artwork, vehicles, or anything else of value. The value is what the item is worth on the date you give it, not what you paid for it years ago. If you give someone stock worth $20,000, that is a $20,000 gift even if you bought the stock for $5,000.

Loans are not gifts, but they have rules of their own. If you loan money to someone without charging interest, the IRS assumes a minimum interest rate applies. If the actual interest rate is lower than that minimum, the difference is treated as a gift. The minimum rate changes monthly and is published by the IRS.

How gift tax interacts with estate tax

The federal gift tax and the federal estate tax are connected. They share the same lifetime exemption. Every dollar you give away as a gift during your lifetime reduces the amount you can pass to heirs tax-free when you die.

If you give away $1 million during your lifetime, you have $12.61 million left in your exemption (in 2024). When you die, your estate can pass $12.61 million to heirs tax-free; anything above that is taxed at 40 percent. This is why some people use their lifetime exemption strategically — they give money away while living to reduce the size of their taxable estate.

The exemption amounts are the same for gift tax and estate tax, but they are separate calculations. Gifts you made years ago still count against your exemption when you die, even if you did not owe tax on them at the time.

State gift taxes and other considerations

The federal gift tax is separate from state taxes. A few states have their own gift tax or estate tax, with lower exemption amounts than the federal government. If you live in or give property to someone in Connecticut, Delaware, Illinois, Iowa, Kentucky, Maryland, Nebraska, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, or Washington, check your state's rules — you may owe state tax even if you owe no federal tax.

Gifts to non-citizens have different rules. If you give more than $185,000 in 2024 to someone who is not a U.S. citizen or resident alien, the excess counts against your lifetime exemption. Gifts to a spouse who is not a U.S. citizen are limited to $185,000 per year.

If you are unsure whether a transfer counts as a gift or whether you need to file a return, a tax professional or the IRS can help clarify. The IRS website has worksheets and examples, and you can call the IRS at 1-800-829-1040 with specific questions about your situation.

Frequently Asked Questions

Do I have to pay gift tax if someone gives me money?

No. The person who gives the gift pays any tax owed, not the person who receives it. You can receive gifts of any size without owing tax or filing a return. The giver may have to file a return to report the gift, but that does not affect you.

What if I give someone money and they pay me back later?

If you genuinely intended to loan the money and the person repays you, it is not a gift. However, if there is no written agreement and no repayment schedule, the IRS may treat it as a gift. To be safe, put loan agreements in writing and charge at least the IRS minimum interest rate.

Can I give my child money for a down payment on a house without it being a gift?

If you give the money outright, it is a gift and counts toward your yearly limit. If you loan the money with a written agreement and charge interest at the IRS minimum rate, it is a loan and does not count as a gift. The distinction matters for both gift tax and for mortgage qualification, since lenders treat gifts and loans differently.

If I give someone $20,000 in one year, do I owe tax?

Not when ready. If you gave $20,000 to one person in 2024, you exceeded the yearly limit by $2,000. You must file Form 709 to report it, but the $2,000 counts against your lifetime exemption instead of being taxed. You owe tax only if you have already used your entire lifetime exemption.

What happens to my exemption if I do not use it?

Your lifetime exemption does not expire or roll over. It stays with you for life. If you never give away more than the yearly limit, you never use your exemption and never owe gift tax. When you die, any unused exemption is gone — it does not pass to your heirs or your spouse.