Gift Tax, Explained: 2024 Exemptions and Rates (2024)

Gift Tax, Explained: 2024 Exemptions and Rates (1)

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. However, a financial advisorcan help you determine what your tax liability may be if you plan to give money or property to another person.

Do you have questions about building a tax plan? 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 2024, the annual gift tax exclusion is $18,000, meaning a person can give up to $18,000 to as many people as he or she wants without having to pay any taxes on the gifts. For example, a man could give $18,000 to each of his 10 grandchildren this year with no gift tax implications. For context, the 2023 gift tax exemption is $17,000.

But perhaps the same man chooses to give each grandchild $22,000 instead, exceeding the 2024 annual exclusion limit by $4,000 per gift. In this scenario, grandpa could potentially owe gift taxes on the $40,000 overage, but not necessarily.

What about for married couples? Each spouse may give away $18,000 tax-free in 2024. This would allow Cynthia and Joe, a married couple, to give up to $36,000 to each of their three nieces and nephews every year.

Lifetime IRS Gift Tax Exemption

If a gift exceeds the $18,000 limit for 2024, that does not automatically trigger the gift tax. Also for 2024, the IRS allows a person to give away up to $13.61 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 2024 tax year: A woman decides to buy her granddaughter a $30,000 car as a college graduation present. Grandma would technically exceed the 2024 $18,000 exclusion limit by a total of $12,000, but she wouldn’t owe additional taxes.That’s because she would report the gift to the IRS using a Form 709 and deduct $12,000 from her $13.61 million lifetime exemption. As a result, she would still be eligible to give away up to $13,598,000 tax-free.

Here’s a breakdown:

IRS Gift Limit Example

Gift Value2024 Gift Tax Exemption LimitTaxable Amount2024 Lifetime Gift Tax Exemption LimitRemaining Lifetime Exemption Limit After Gift

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 ($18,000 in 2024 and $17,000 in 2023). To calculate their tax liability, the donor would use the following tax brackets:

Federal Gift Tax Rates

Taxable Amount Exceeding Lifetime Exemption LimitGift Tax Rate
$0 – $10,00018%
$10,001 – $20,00020%
$20,001 – $40,00022%
$40,001 – $60,00024%
$60,001 – $80,00026%
$80,001 – $100,00028%
$100,001 – $150,00030%
$150,001 – $250,00032%
$250,001 – $500,00034%
$500,001 – $750,00037%
$750,001 – $1,000,00039%

Bottom Line

Understanding the ins and outs of the federal gift tax can be important for the wealthy and generous, but most Americans will never face this tax. That’s because the IRS allows you to give away up to $18,000 in 2024 and $17,000 in 2023 in money or property to as many people as you like each year. The government also exempts $13.61 million in 2024 and $12.92 million in 2023 in gifts from tax over a person’s lifetime. 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 can 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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Gift Tax, Explained: 2024 Exemptions and Rates (2024)


Gift Tax, Explained: 2024 Exemptions and Rates? ›

The IRS allows individuals to give away a specific amount of assets or property each year tax-free. For 2024, the annual gift tax exclusion is $18,000, meaning a person can give up to $18,000 to as many people as he or she wants without having to pay any taxes on the gifts.

What is the gift tax exclusion for 2024? ›

Federal gift tax exemption 2024

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.

How much money can you gift to a family member tax free? ›

The IRS allows every taxpayer is gift up to $18,000 to an individual recipient in one year. There is no limit to the number of recipients you can give a gift to.

What is the new tax credit for 2024? ›

The child tax credit is a $2,000 benefit available to those with dependent children under 17. For the 2024 filing season, $1,600 of the credit was potentially refundable.

What are the IRS changes for 2024? ›

For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.

How does IRS know you gifted money? ›

The primary way the IRS becomes aware of gifts is when you report them on form 709. You are required to report gifts to an individual over $17,000 on this form. This is how the IRS will generally become aware of a gift. However, form 709 is not the only way the IRS will know about a gift.

Who pays the gift tax, the giver or the receiver? ›

A federal tax called the gift tax is assessed on transfers of cash or property valued above a certain threshold. Gift tax is paid by the giver of money or assets, not the receiver.

How do I avoid gift tax? ›

6 Tips to Avoid Paying Tax on Gifts
  1. Respect the annual gift tax limit. ...
  2. Take advantage of the lifetime gift tax exclusion. ...
  3. Spread a gift out between years. ...
  4. Leverage marriage in giving gifts. ...
  5. Provide a gift directly for medical expenses. ...
  6. Provide a gift directly for education expenses. ...
  7. Consider gifting appreciated assets.

How to gift large sums of money to family? ›

By setting up an irrevocable trust, donors can direct how they want the money to be managed and specify how it can be distributed and when it should be withheld, even if that happens after the donor's death.

Does gifted money count as income? ›

Essentially, gifts are neither taxable nor deductible on your tax return.

At what age is social security no longer taxed? ›

Social Security tax FAQs

Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.

Why is everyone owing taxes this year in 2024? ›

Under-withholding from Your Paycheck

Under-withholding is the #1 reason individuals owe taxes. This occurs when not enough tax is taken out of your paychecks throughout the year.

What is the tax deduction for 2024 for over 65? ›

2024 standard deduction over 65

The additional standard deduction amount for 2024 (returns usually filed in early 2025) is $1,550 ($1,950 if unmarried and not a surviving spouse). See the charts below.

What is the federal exemption for 2024? ›

Effective January 1, 2024, the federal estate and gift tax exemption amount increased from $12.92 million to $13.61 million per individual (a combined $27.22 million for a married couple), representing an increase of $690,000.

What are the 2024 tax brackets? ›

State Individual Income Tax Rates and Brackets, as of January 1, 2024
StateSingle Filer RatesSingle Filer Brackets
40 more rows
Feb 20, 2024

What is the extra standard deduction for seniors over 65? ›

For tax year 2023, the additional standard deduction amounts for taxpayers who are 65 and older or blind are: $1,850 for single or head of household.

What happens to the federal estate tax exemption in 2026? ›

There's also this to consider: The record-high estate tax exclusion amount now allowed is scheduled to be cut roughly in half on January 1, 2026. Currently, you can transfer up to $13.61 million free of estate taxes during your lifetime. Married couples can gift $27.22 million.

What will the federal estate tax exemption be in 2025? ›

It is scheduled to expire, or “sunset,” on December 31, 2025, unless Congress acts to extend it or make it permanent. If no action is taken, the exemption amount will revert to its pre-TCJA level of $5.6 million per individual, adjusted for inflation from 2017.

What is the gift tax for 2025? ›

How do estate and gift taxes actually work? In 2023, you can make annual gifts to any one person up to a maximum of $17,000 per year ($18,000 in 2024, estimated to be $19,000 in 2025). Spouses can elect to “split” gifts, which doubles the annual amount a married couple can give away in any year.

Can both parents give $3,000 each year? ›

You may need to split this amount between your children to effectively use your allowance. Note that this is a per person allowance, so both parents may gift £3,000 each per year. If you don't use your total annual gift allowance, you can carry it over to the following year, although you can only do this once.

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