Are you considering giving a financial gift of cash or property this year? Knowing the IRS gift tax rules can help you save time and money, while potentially sparing you from filing gift tax returns.
What is the gift tax?
According to the IRS, gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether or not the donor intends the transfer to be a gift.
A gift is when you give money, property, or its income or use to someone without getting equal value in return. Selling something for less than its worth or offering a loan with little or no interest may also count as a gift. The federal gift tax — ranging from 18% to 40% — applies when you transfer something of value without full compensation.
The gift giver is usually responsible for any tax owed. However, the estate bears the responsibility if the giver dies before the tax is settled. However, there are some circumstances where the recipient could be responsible.
For IRS purposes, gifts are valued at their fair market value at the time of the transfer. In addition to cash gifts, the gift tax includes:
- Real estate
- Vehicles
- Stock transfers
- Forgiven debts
- Life insurance proceeds
- Other assets of value
How much can you give tax-free in 2025?
Each year, the IRS adjusts the annual gift tax exclusion for inflation. In 2025, that exclusion increases to $19,000 per recipient, up from $18,000 in 2024. You can gift this amount to as many recipients as you like with no impact on your lifetime estate and gift tax exemption. If you’re married, your spouse can gift the same amount. In 2025:
- You can give up to $19,000 per person without having to report it to the IRS.
- Married couples can combine their exclusions to give up to $38,000 per recipient tax-free.
For example, a married couple can give $38,000 to each of their two children, their spouses, and two grandchildren — totaling $228,000 tax-free.
Gifts made to spouses, charitable organizations, political groups, educational institutions (for tuition), and medical care providers may be exempt from gift tax. For larger gifts or complex situations, speak with a tax advisor to ensure you’re following current IRS guidelines.
These limits apply per calendar year. Gifts should be given by Dec. 31, 2025, to count for the 2025 tax year.
What about the lifetime gift and estate tax exemption?
In addition to the annual exclusion, the IRS allows a lifetime exemption for larger gifts. For 2025, that exemption is $13.99 million per individual, or $27.98 million per married couple.
However, under the One Big Beautiful Bill Act (OBBBA) signed on July 4, 2025, the lifetime gift and estate tax exemption will increase to $15 million per individual (or $30 million per couple) starting Jan. 1, 2026.
This new exemption is permanent and will be indexed for inflation beginning in 2027, eliminating the previously scheduled reduction to around $7 million.
This change provides greater certainty for long-term estate planning and reduces the urgency to make large gifts before year-end. Still, strategic gifting remains a valuable tool for managing estate tax exposure and leveraging asset appreciation outside the taxable estate.
Are more changes coming in 2026?
Are changes coming in 2026? Yes, but not the kind originally expected. Prior to OBBBA, the Tax Cuts and Jobs Act (TCJA) provisions were set to expire at the end of 2025, which would have cut the lifetime exemption nearly in half. That’s no longer the case.
Thanks to The One Big Beautiful Bill, the $15 million lifetime gift and estate tax exemption will take effect on Jan. 1, 2026, and will be permanently maintained, with inflation adjustments starting in 2027. This removes the “use it or lose it” pressure that previously drove accelerated gifting strategies.
While future legislation could still alter these thresholds, the current law offers a stable foundation for estate planning. High-net-worth individuals should still consider gifting strategies, especially for appreciating assets, but now have more flexibility in timing and structure.
For more information, talk with your wealth advisor. If you’re not a client and would like more information, let’s talk.
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