What counts as a gift for tax purposes

The IRS taxes gifts only when they exceed a yearly threshold. In 2024, you can give up to $18,000 per person per year without filing a gift tax return. If you give more than that to one person in a single year, you must file Form 709 with the IRS, even if you owe no tax.

A gift is any transfer of money or property where you receive nothing of equal value in return. This includes cash, real estate, vehicles, investments, and forgiven loans. Gifts to your spouse have no limit. Gifts that pay someone's tuition or medical bills directly to the provider are not taxed as gifts, even if they exceed the yearly amount — but only if you pay the school or hospital, not the person.

Gifts to charities and political organizations are not subject to gift tax. Gifts to your employer or political candidates are taxed as gifts. If you are unsure whether something counts as a gift, the safest approach is to treat it as one and file Form 709.

Key Takeaways

  • You can give $18,000 per person per year in 2024 without filing a gift tax return, and this limit changes yearly based on inflation.
  • Gifts to one person over $18,000 in a single year require you to file Form 709, even if no tax is owed.
  • Tuition and medical bills paid directly to the provider do not count as taxable gifts, regardless of amount.
  • Your lifetime gift and estate tax exemption is $13.61 million in 2024, and gifts over the yearly limit reduce this exemption dollar-for-dollar.
  • Married couples can combine their yearly limits to give $36,000 per person per year without filing.

The yearly gift tax exclusion and when you must file

The annual exclusion is the amount you can give to each person each year without triggering a gift tax return. For 2024, this is $18,000 per recipient. The IRS adjusts this amount every year for inflation, usually in increments of $1,000. You can give this amount to as many people as you want — the limit applies per person, not per year total.

You must file Form 709 (United States Gift Tax Return) if you give more than $18,000 to any single person in 2024. File it with your federal income tax return by April 15 of the following year. If you file late, penalties explore. The form tells the IRS how much you gave and to whom, and it reduces your lifetime exemption.

If you are married, you and your spouse can each give $18,000 to the same person in the same year, for a combined $36,000, without either of you filing. This is called gift splitting. Both spouses must agree to split gifts, and you report this on Form 709 even if no tax is owed.

How the lifetime exemption works

The IRS allows you a lifetime exemption of $13.61 million in 2024. This is the total amount you can give away during your life and at death before owing federal gift or estate tax. Every gift over the yearly exclusion reduces this exemption dollar-for-dollar.

For example: if you give $25,000 to your child in 2024, you exceed the $18,000 yearly limit by $7,000. That $7,000 counts against your $13.61 million lifetime exemption. You file Form 709 to report it, but you owe no tax because you still have $13.6 million left. If you give away your entire $13.61 million during your life, your estate will owe federal estate tax when you die.

The lifetime exemption amount changes every year and is set to drop significantly in 2026 unless Congress acts. Check the current year's exemption before making large gifts. State gift taxes vary — some states have their own gift tax with lower exemptions, so you may owe state tax even if you owe no federal tax.

Calculating gift tax on property and investments

When you give property or investments instead of cash, you must determine the fair market value — what a willing buyer would pay a willing seller on the date of the gift. This is the amount that counts toward your yearly exclusion and lifetime exemption.

For real estate, use a professional appraisal or the assessed value from your county assessor's office. For stocks and mutual funds, use the closing price on the date you transferred them. For vehicles, use the NADA Guides or Kelley Blue Book value for that date. For art, jewelry, or collectibles, you may need a professional appraiser, especially if the value exceeds $5,000.

If you give property that has increased in value since you bought it, you do not owe capital gains tax on that increase — the recipient gets what is called a stepped-up basis and can sell it later without owing tax on your gain. However, the full current value still counts as a gift for gift tax purposes.

Gifts that do not count toward the limit

Certain transfers are not taxed as gifts even if they exceed the yearly amount. Tuition paid directly to a school or university does not count, no matter how much. Medical expenses paid directly to a doctor, hospital, or insurance company do not count. These payments must go to the provider, not to the person receiving care.

Gifts to your spouse who is a U.S. citizen have no limit. Gifts to a spouse who is not a U.S. citizen are limited to $185,000 per year in 2024 (this amount also adjusts yearly). Gifts to political organizations and charities do not count. Payments you make on someone else's behalf for rent, utilities, or other living expenses may count as gifts unless you have a legal obligation to support that person.

If you forgive a loan, the forgiven amount is a gift. However, if you charge interest at or above the IRS minimum rate (called the Applicable Federal Rate, or AFR), the loan itself is not a gift. The AFR changes monthly and is published on the IRS website.

How to report gifts on Form 709

Form 709 has three main sections. Part 1 asks for your information and the date of the gift. Part 2 lists each gift: the recipient's name and address, a description of what you gave, the date, and the fair market value. Part 3 calculates how much of your lifetime exemption the gifts use up.

You do not calculate tax owed on Form 709 unless your gifts exceed your lifetime exemption. Most filers file the form only to report gifts over the yearly limit and to use up their exemption. If your total gifts in 2024 exceed $18,000 to any one person, file Form 709 with your 1040 by April 15, 2025.

Keep records of every gift: the date, the amount or value, who received it, and how you determined the value. If you give property, keep the appraisal or the source you used to find fair market value. The IRS can ask for these records years later, especially if the value is large or unusual.

State gift taxes and special situations

Nine states have their own gift tax: Connecticut, Delaware, Illinois, Louisiana, Mississippi, New York, North Carolina, Tennessee, and Vermont. State exemptions are usually lower than the federal $18,000 limit. If you live in or give property in one of these states, you may owe state gift tax even if you owe no federal tax. Check your state's department of revenue for current limits and filing requirements.

If you give a gift that is contingent on something happening — for example, money to your child only if they graduate college — the gift is still taxable when you give it. The condition does not reduce the value for tax purposes. If you give a gift with strings attached, such as the right to take it back, the IRS may not treat it as a completed gift, and you may not be able to use your exclusion.

Gifts between spouses who are both U.S. citizens are unlimited and do not require filing. If you are married and file jointly, you and your spouse can combine your exclusions to give $36,000 per person per year without filing, as long as you both agree to split the gifts.

Frequently Asked Questions

Do I owe tax if I give someone $20,000 in 2024?

You do not owe tax, but you must file Form 709 because you exceeded the $18,000 yearly limit by $2,000. The $2,000 over the limit reduces your $13.61 million lifetime exemption. File Form 709 with your 2024 tax return by April 15, 2025.

What if I give my child $10,000 and my spouse gives them $10,000 in the same year?

If you both agree to split gifts, you can treat it as if each of you gave $10,000 and the other gave $10,000, for a total of $20,000 that counts against your combined $36,000 yearly limit. You must both file Form 709 and check the box for gift splitting. Neither of you exceeds the limit, so no tax is owed.

Does paying my child's college tuition count as a gift?

Only if you pay the college directly. If you pay the school $30,000 for tuition, it does not count as a gift, no matter the amount. If you give your child $30,000 and they pay the tuition, it counts as a gift and exceeds the yearly limit.

What happens if I give away my entire $13.61 million lifetime exemption?

You can still give money and property, but any gifts over the yearly $18,000 per person limit will be taxed at 40 percent. You will owe federal gift tax on the amount over the limit. Your estate will also owe tax when you die on any remaining assets.

Do I need to report gifts I received?

No. Gift tax is paid by the person who gives, not the person who receives. You do not report gifts you received on your tax return, and you do not owe income tax on them.