Question 1

What is the gift tax?

Accepted Answer

The gift tax is a federal tax on the transfer of property or money to another person while receiving nothing (or less than full value) in return. The tax is paid by the donor (the person making the gift), not the recipient. Most people never actually pay gift tax because of the generous annual exclusion and lifetime exemption.

Question 2

What is the annual gift tax exclusion for 2025?

Accepted Answer

For 2025, the annual gift tax exclusion is $19,000 per recipient. This means you can give up to $19,000 to as many individuals as you want without any gift tax consequences or reporting requirements. Married couples can combine their exclusions to give up to $38,000 per recipient.

Question 3

What is the lifetime gift tax exemption?

Accepted Answer

The lifetime gift tax exemption (also called the unified credit) is the total amount you can give away during your lifetime and at death before owing any gift or estate tax. For 2025, this amount is $13.99 million per person ($27.98 million for married couples). This exemption is unified with the estate tax exemption.

Question 4

Do I have to file a gift tax return (Form 709)?

Accepted Answer

You must file Form 709 if you give any individual more than the annual exclusion amount ($19,000 in 2025), if you and your spouse elect gift splitting, if you give a future interest gift, or if you make a gift to a 529 plan using the 5-year election. Filing Form 709 does not necessarily mean you owe tax.

Question 5

Does the recipient pay gift tax?

Accepted Answer

No. The gift tax is the responsibility of the donor (the person making the gift). The recipient does not pay income tax on the gift either. However, if the gifted property later generates income (like dividends or rent), the recipient will owe income tax on that income.

Question 6

What is gift splitting?

Accepted Answer

Gift splitting allows married couples to treat a gift made by one spouse as if each spouse made half the gift. This effectively doubles the annual exclusion to $38,000 per recipient. Both spouses must consent and file Form 709, even the spouse who did not actually make the gift.

Question 7

What gifts are exempt from gift tax?

Accepted Answer

Several types of transfers are exempt: payments made directly to educational institutions for tuition (not room and board), payments made directly to medical providers for medical expenses, gifts to your spouse (unlimited marital deduction), gifts to qualified charities, and gifts to political organizations.

Question 8

What is the gift tax rate?

Accepted Answer

The gift tax rate is 40% on taxable gifts that exceed your lifetime exemption. However, because the lifetime exemption is so high ($13.99 million in 2025), very few people ever actually pay gift tax. The tax applies only after you've used up your entire lifetime exemption.

Question 9

What happens to the gift tax exemption in 2026?

Accepted Answer

The Tax Cuts and Jobs Act (TCJA) provisions that doubled the lifetime exemption are scheduled to sunset after 2025. If Congress does not act, the exemption could drop to approximately $7 million (adjusted for inflation) in 2026. However, the IRS has confirmed that gifts made under the higher exemption will not be 'clawed back' — this is known as the anti-clawback rule.

Question 10

Is there a state gift tax?

Accepted Answer

Connecticut is the only state that currently imposes a separate gift tax. However, several states have estate taxes with lower exemptions than the federal level, and some states (like Minnesota and New York) have rules that add certain gifts made near death back to the taxable estate.

Question 11

How do I value a gift for gift tax purposes?

Accepted Answer

Gifts are valued at their fair market value (FMV) on the date of the gift. For publicly traded stocks, this is typically the average of the high and low prices on the gift date. For real estate, a professional appraisal is usually required. For closely held business interests, a qualified business valuation is necessary.

Question 12

Can I give money to my grandchildren without gift tax?

Accepted Answer

Yes, you can give up to the annual exclusion ($19,000 in 2025) to each grandchild without gift tax consequences. You can also pay their tuition directly to the school or their medical bills directly to the provider without using any exclusion. For larger gifts, be aware of the Generation-Skipping Transfer (GST) tax, which may apply in addition to gift tax.

Gift Tax FAQ

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