Many people give a gift of money to celebrate an occasion or milestone for a loved one without contemplating taxes. And in most cases, you don’t have to worry about it because of the annual tax-free gift limit for 2024 and the lifetime gift tax limit. But once your gift crosses a threshold, you, the gift giver, must complete a gift tax return. Learn the ins and outs of taxation on gifts to prevent paying penalties or fees for failing to properly disclose large gifts.
What is the Gift Tax?
First, let’s define a gift. When you give someone something without getting the full value in return, this is considered a gift. Gift tax can kick in for the payer, not the receiver if the payer reaches thresholds based on the annual gift tax limit and the lifetime gift tax limit.
You’ll want to follow the annual gift tax exclusion thresholds to know how much you can freely give in any tax year. But know that there is also a lifetime gift tax exclusion ($13.61 million in 2024) that in the unlikely event you cross, you’ll owe taxes on all subsequent gifts.
Your recipient will not have to pay taxes on what you give them. Gifts are entirely tax-free in all situations for them.
What is the Gift Tax Limit for 2024?
The 2024 gift tax limit is $18,000, up from $17,000 in 2023. Married couples can each gift $18,000 to the same person, totaling $36,000, up from $34,000 in 2023. If you gift more than that, you’ll need to file a federal gift tax return when you complete your taxes in 2025.
The lifetime gift tax limit for 2024 is $13.61 million, up from $12.91 million in 2023.
How the Annual Gift Tax Exclusion Works?
The annual gift tax exclusion allows you to gift a person a maximum per year without having to report those funds to the IRS. For 2024, you can gift up to $18,000 to one person without reporting the funds. You can freely give gifts to other people as well. The threshold applies to giving money or assets to any one person, so you can spread your wealth around without paying taxes. Note that the exclusion applies per recipient and not the total amount you gift in any year.
Should you choose to gift more than $18,000 in assets (stocks, material goods, cars, cash) to one person in 2024, you’ll need to file a federal gift tax return, which is independent of your annual federal tax return.
Filing a federal gift tax return doesn’t necessarily mean you’ll pay taxes on the value of your gift. It just ensures that you disclose the gift using IRS Form 709.
One way to maximize the gift tax exclusion for married couples is for each spouse to gift the full $18,000 to the recipient. That way, you can gift up to $36,000 to one person without filing a gift tax return. This is known as gift splitting.
Additionally, you can gift assets back and forth between spouses without triggering the gift tax. The only time gifts between spouses might trigger a tax is if one spouse isn’t a U.S. citizen.
Most of the time, the gift recipient does not have to claim the gift on their taxes. It is all about the gift giver.
How the Lifetime Gift Tax Exclusion Works
The lifetime gift tax exclusion outlines how much you can gift in your lifetime. Just like the annual exclusion, this amount is per person, which means married couples can gift twice as much, as long as you ensure neither spouse is exceeding their individual maximum.
In 2024, the per-person gift tax exclusion is $13.61 million. This number is more important than the annual number because when you exceed the lifetime maximum you might need to pay taxes on the assets you transfer.
For example, you want to help your son or daughter buy a house and gift them $100,000 to aid in the process. You must report $82,000 on IRS Form 709 in going over the annual gift amount. But you likely won’t pay taxes on that $82,000. It will just get added to your lifetime exclusion. If you then offer a similar gift to another child the following year, you’ll once again report the overage for that tax year and further chip away at your lifetime maximum.
Filing the annual gift tax return helps track the lifetime exclusion. Most people don’t gift amounts that exceed the annual maximum in their entire lifetime. And that leaves the full lifetime exclusion that will apply to your estate at your passing.
How Much is the Gift Tax Rate?
In most cases, you’ll only pay gift tax on the amount that you exceed over the lifetime exclusion. The gift tax rate is 18%-40% depending on how far you go over your lifetime maximum. It works kind of like tax brackets in that you pay escalating amounts the more you gift. Here’s a look at how the taxes work.
| Taxable Amount Over Lifetime Exclusion | Gift Tax Rate |
| Up to $10,000 | 18% |
| $10,001 to $20,000 | 20% |
| $20,001 to $40,000 | 22% |
| $40,001 to $60,000 | 24% |
| $60,001 to $80,000 | 26% |
| $80,001 to $100,000 | 28% |
| $100,001 to $150,000 | 30% |
| $150,001 to $250,000 | 32% |
| $250,001 to $500,000 | 34% |
| $500,001 to $750,000 | 37% |
| $750,001 to $1,000,000 | 39% |
| $1 million and up | 40% |
How to File IRS Gift Tax Return
When you give a gift that exceeds the annual maximum, you’ll need to complete IRS Form 709 or work with your financial adviser to do so.
You’ll start by completing the General Information section, which identifies you to the IRS. When you reach Line 12, you can outline whether you and your spouse gave joint gifts during the tax year. You can skip this line if you did not. But if you do fill out this section, both you and your spouse must sign the form.
You’ll complete Schedule A, which is the Computation of Taxable Gifts. You’ll outline and describe the various gifts you gave, who you gave them to and the value of the gift at the time of transfer. This section requires that you outline gifts to individuals and to trusts.
The form also has a spot for entering gifts from prior periods (schedule B), deceased spousal unused exclusion amounts (Schedule C) and computation of generation-skipping transfer tax (Schedule D). You’ll only need to complete Schedule D if you complete part two of three of Schedule A.
Do You Pay Taxes When You Receive a Gift?
Generally, the gift recipient does not have to pay taxes on a gift. The gift tax applies to the giver when exceeding the lifetime gift exclusion. In special circumstances, the recipient might agree to pay the tax instead of the giver. Counseling a tax adviser on this is wise.
Gift Tax vs. Estate Tax?
When determining whether gift tax or estate tax will apply when transferring assets, the simplest determination is whether the gift giver is alive at the time of the asset transfer. Gift tax applies when you transfer assets while living. Estate tax is an inheritance and applies to property transferred after death.
The main similarity between the two is that the total amount transferred in gifts and estate applies to the lifetime exemption amount. Gifting funds within the annual estate tax exemption could help you reduce your estate taxes later if you believe your estate will exceed the lifetime gift tax exclusion.
Sharing Your Wealth Via Gifting
You can share your wealth while you’re alive through gifts that do not exceed the annual gift tax exclusion to transfer assets without having to file additional tax forms. You’ll just need to pay attention to gifting limits the IRS sets forth and how they adapt and change annually. Keep in mind that you won’t pay taxes on gifts until you exceed the lifetime gift exclusion, but you must report all gifts that go over that year's maximum to be calculated into your lifetime amount.
Frequently Asked Questions
How much money can be legally given to a family member as a gift?
You can legally give as much to a family member as a gift as you want, but if you exceed the annual gift exclusion amount for that year, you’ll need to report it on IRS Form 709, and the funds in excess of that year’s maximum will count toward your lifetime gift exclusion.
Can my parents gift me $30,000?
Yes, your parents can gift you $30,000 and you won’t face any tax implications. However, your parents will need to file Form 709 to claim the amount they gave you in excess of the annual gift exclusion limit.
What is the lifetime gift tax limit for 2024?
The lifetime gift tax limit for 2024 is $13.61 million per person or twice that amount for married couples since it applies to each individual.
About Rebekah Brately
Rebekah Brately is an investment writer passionate about helping people learn more about how to grow their wealth. She has more than 12 years of writing experience, focused on technology, travel, family and finance. Her work has been published in Benzinga, Hearst Bay Area, FreightWaves and Dallas Observer publications.