Are you considering giving cash or property to loved ones or others in 2024 or next year, in 2025? Knowing the annual gift tax exclusion can save you money and spare you from filing gift tax returns.
Here’s what you need to know about the federal gift tax and how much you can offer as a one-time gift this year without worrying about tax reporting.
What is the gift tax?
The gift tax, a federal tax ranging from 18% to 40%, applies to gifts individuals make throughout the year.
While the giver typically pays the tax (if any), there are some circumstances where the recipient could be responsible. Additionally, the estate bears the federal gift tax responsibility if the giver dies before the tax is settled.
- The gift tax extends beyond cash transactions, encompassing real estate, vehicles, forgiven debts, insurance policy benefits, stock transfers, etc.
- For tax purposes, the gift amount is the item's "fair market value" at the time of the gift.
Gift tax limit: How much gift money is tax-free?
To navigate federal gift tax, most people leverage exemptions. One is the annual gift tax exclusion, also known as the gift tax limit, a set dollar amount adjusted yearly for inflation. You can gift this amount annually to as many recipients as you desire, and if you're married, your spouse can also.
Note: Certain gifts, such as those to spouses, charitable organizations, political entities, educational institutions (for tuition), and healthcare providers (for medical care), may also be exempt.
It’s a good idea to consult with a tax professional for sizable gifts to ensure compliance with tax rules and regulations.
2024 Limit
2024 gift tax limit
- For 2024, the annual gift tax limit is $18,000. (That’s up $1,000 from last year’s limit since the gift tax is one of many tax amounts adjusted annually for inflation.)
- For married couples, the combined 2024 limit is $36,000.
For example, if you are married and have two married children and two grandchildren, you and your spouse can give up to $36,000 to each of your kids, their spouses, and the grandchildren in 2024 without having to file a gift tax return or pay any tax. This means you can give a total of $216,000 in tax-free gifts.
Remember: staying under these limits per recipient exempts you from filing a gift tax return for the year. However, the annual limit is time-sensitive, meaning you need to make 2024 gifts before Dec. 31, 2024.
2023 amount
Tax-free gift limit 2023
Last year, the annual gift tax limit was $17,000. For married couples, the combined 2023 limit was $34,000.
Planning ahead: 2025
Gift tax limit 2025
The IRS recently announced increases in gift and estate tax exemptions for 2025. The annual gift tax exclusion will rise to $19,000 per recipient, up $1,000 from the 2024 limit. (These are the numbers you'll refer to when planning your 2025 tax liability, returns typically filed in early 2026.)
- Individuals can give up to $19,000 to any number of people in 2025 without triggering gift tax reporting requirements.
- Married couples can effectively double this amount to $38,000 per recipient.
Additionally, the lifetime estate and gift tax exemption will increase to $13.99 million per individual for 2025, up from $13.61 million in 2024.
This allows a married couple to potentially shield up to $27.98 million from federal estate and gift taxes. However, it's important to note that under current law, this expanded exemption is set to expire at the end of 2025, potentially reverting to roughly half this amount in 2026 if Congress doesn’t act.
This looming change (discussed below) makes strategic gift planning particularly important for high-net-worth individuals and families in the coming year.
What if you exceed the gift tax limit?
If you exceed the annual gift tax limit, you may have to file a federal gift tax return (IRS Form 709). But exceeding the limit doesn't necessarily result in owing tax, thanks to a high lifetime estate and gift tax exemption.
The 2024 lifetime estate tax exemption is $13.61 million (double for married couples). (In 2023, it was $12.92 million and, as mentioned, rises to $13.99 million next year.)
This shields most people from having to pay federal gift tax. You report excess amounts beyond the annual exclusion on Form 709, but actual gift tax payment only occurs if the total surpasses the lifetime limit.
Lifetime gift tax exemption changes in 2026
Looking ahead, the lifetime estate and gift tax exemption is scheduled to be reduced by half in 2026 due to the looming Tax Cuts and Jobs Act (TCJA) expiration. The exemption will also be adjusted for inflation. (Estimates suggest a reduction close to $7 million or less).
- If you are wealthy and have a large estate, gifts given in 2026 or beyond (if the limit sunsets as scheduled) could be subject to up to 40% gift tax.
- Meanwhile, gifts given before 2026 benefit from the high lifetime tax exemption.
2024 gift limit: Bottom line
Understanding the nuances of the gift tax exclusion can help you navigate the gift-giving landscape in a way that saves you time.
But giving and estate planning can be complex, so consult a tax professional for personalized advice tailored to your unique circumstances.
