The gift tax is a federal levy on the transfer of money or property to another person when equal value is not received in return. While it may sound cumbersome, most Americans will never pay a cent in gift taxes to Uncle Sam due to several key IRS rules. The IRS provides an annual exclusion and a lifetime exemption that reduce or eliminate a person’s potential gift tax liability. For 2025, the gift tax exemption is $19,000, which is a $1,000 increase over the 2024 exemption of $18,000.
A financial advisor with estate and tax planning expertise can help you manage your gift tax and estate tax liabilities. Speak with a financial advisor today.
What Is the Gift Tax?
When a person gives money or property to someone other than their spouse or dependent, they may be required to pay gift tax. This federal excise starts at 18% and can reach up to 40% on certain gift amounts. The responsibility for paying the tax typically lies with the donor, not the individual receiving the gift. While recipients don’t face any immediate tax consequences, they may have to pay capital gains tax if they sell gifted property in the future.
Not all gifts are subject to this tax, though. Certain gifts are entirely free of tax, including:
- School tuition and education payments
- Charitable donations
- Medical expenses
- Political contributions
- Gifts to spouses and dependents
The gift tax does not play a significant role in the finances of most Americans because of two key IRS provisions: the annual gift tax exclusion and lifetime exemption.
Annual Gift Tax Exclusion
The IRS allows individuals to give away a specific amount of assets or property each year tax-free. For 2025, the annual gift tax exclusion is $19,000, up from $18,000 in 2024. This means a person can give up to $19,000 to as many people as he or she wants without having to pay any taxes on the gifts. For example, a man could give $19,000 to each of his grandchildren in 2025 with no gift tax implications.
But perhaps that same man chooses to give each grandchild $22,000 instead, exceeding the 2025 exclusion limit by $3,000 per person. In this scenario, grandpa would have to report the gift and could even owe gift taxes on the $3,000 overage, but only if he has surpassed the lifetime exemption, which we’ll go over below.
For married couples, each spouse may give away $19,000 tax-free in 2025. This would allow each spouse to combine their $19,000 limit to give up to a total of $38,000 to each of their gift recipients in 2025.
Lifetime IRS Gift Tax Exemption
If a gift exceeds the $19,000 limit for 2025, that does not automatically trigger the gift tax. For 2025, the IRS allows a person to give away up to $13.99 million in assets or property over the course of their lifetime and/or as part of their estate. If a gift exceeds the annual exclusion limit, the difference is simply subtracted from the person’s lifetime exemption limit and no taxes are owed.
Consider this example for the 2025 tax year: Susan decides to gift her granddaughter $30,000 for a car as a college graduation present. Susan’s gift would exceed the 2025 gift exclusion limit of $19,000 by a total of $11,000, but she wouldn’t owe additional taxes. That’s because she would report the gift to the IRS using Form 709 and deduct the $11,000 overage from her $13.99 million lifetime exemption instead. As a result, she would still be eligible to give away up to $13,979,000 tax-free. Here’s a breakdown:
IRS Gift Limit Example
| Gift Value | 2025 Gift Tax Exemption Limit | Taxable Amount | 2025 Lifetime Gift Tax Exemption Limit | Remaining Lifetime Exemption Limit After Gift |
| $30,000 | $19,000 | $11,000 | $13,990,000 | $13,979,000 |
It’s important to remember that a person’s lifetime exemption limit applies to gifts that a person gives while still alive and property left to heirs after the person’s death.
How to Calculate the IRS Gift Tax
As you can see, only people with millions of dollars to give away are subject to the federal gift tax. But if you’re one of those fortunate people, calculating your gift tax liability isn’t overly difficult.
Like federal income tax, gift tax rates are marginal, with the top rate reaching 40%. The larger a gift is, the more a person will potentially pay in taxes. But remember, you don’t have to pay gift taxes until someone exceeds their lifetime exemption.
After eclipsing this lifetime limit, taxes will be due on gifts that surpass the annual exclusion limit ($19,000 in 2025 and $18,000 in 2024). To calculate their tax liability, the donor would use the following tax brackets:
Federal Gift Tax Rates
| Taxable Amount Exceeding Lifetime Exemption Limit | Gift Tax Rate |
| $0 – $10,000 | 18% |
| $10,001 – $20,000 | 20% |
| $20,001 – $40,000 | 22% |
| $40,001 – $60,000 | 24% |
| $60,001 – $80,000 | 26% |
| $80,001 – $100,000 | 28% |
| $100,001 – $150,000 | 30% |
| $150,001 – $250,000 | 32% |
| $250,001 – $500,000 | 34% |
| $500,001 – $750,000 | 37% |
| $750,001 – $1,000,000 | 39% |
| $1,000,000+ | 40% |
Bottom Line
Understanding the ins and outs of the federal gift tax can be important for the wealthy and philanthropic, but most Americans will never have to worry about paying this tax. That’s because the IRS allows you to give away up to $19,000 in 2025 in money or property to as many people as you like ($18,000 in 2024). The government also exempts $13.99 million in 2025 in gifts from tax over a person’s lifetime ($13.61 million in 2024). However, if an individual gift does exceed the annual exclusion, you’ll need to file a Form 706 and report the gift to the IRS.
Tax Planning Tips
- A financial advisor with tax expertise can potentially help you optimize your financial plans for taxes. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- SmartAsset’s income tax calculator can help you gauge how much you’ll owe come tax time.
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