global Tax Your Guide to Gift Tax: What Constitutes a Gift and How to Make One May 20, 2025 Gift-giving isn’t just a generous act, it can also trigger tax implications. With the annual exclusion amount rising to $19,000 in 2025, now’s the time to understand the rules. This guide walks you through what qualifies as a gift, how much you can give tax-free and how to make and report a gift properly. Giving a substantial gift, whether money, property, or other assets, without understanding IRS rules can lead to unintended tax consequences or reporting obligations. Whether you’re helping a family member buy a home or covering education costs, staying compliant with gift tax rules protects both you and your loved ones.Quick TakeawaysYou can give up to $19,000 per person (or $38,000 as a couple) in 2025 without triggering gift tax.Certain gifts, like medical or tuition payments made directly, are always tax-free.Excess gifts don’t incur immediate tax, but they count against your $13.99 million lifetime exemption.Gifts over the limit must be reported using IRS Form 709.Gift tax rates range from 18% to 40% once your lifetime exemption is used up.What Is the Gift Tax?The gift tax applies when you transfer something of value (money, property, etc.) to someone without receiving full compensation in return (and that person is not your spouse or dependent).This tax ensures that significant transfers aren’t used to avoid estate taxes or income taxes.What Counts as a Gift for Tax Purposes?You’ve made a taxable gift if you:Give money or assets without expecting repaymentLet someone use your property rent-freeSell something below market valueProvide an interest-free (or below-market interest) loanWhat Gifts Are Tax-Free?Some gifts are exempt from gift tax entirely, including:Charitable contributionsGifts to your spouse or dependentsDirect payments for medical expenses (paid to the provider)Direct tuition payments (made to the school)Political contributionsTip: Paying for a grandchild’s tuition directly can avoid the gift tax, even if the amount is substantial.What Is the Annual Gift Tax Exclusion?In 2025, you can give up to $19,000 per person without incurring gift tax.Married couples can combine their exclusions and give $38,000 per person, tax-free.There’s no limit to how many people you can gift to each year.What If You Exceed the Annual Exclusion?Don’t panic. If your gift exceeds the $19,000 limit:The excess reduces your lifetime exemption ($13.99 million in 2025)No tax is due unless you exceed that lifetime limitYou must report the gift using Form 709Picture this: You gift your grandson $50,000 toward his first home. Since the 2025 exclusion is $19,000, $31,000 is over the limit. That $31,000 reduces your lifetime exemption, but you don’t owe any immediate tax. You’ll report the gift on Form 709, and the IRS will track your exemption usage.Gift Tax Rates (If You Exceed the Lifetime Limit)Once you’ve used up your $13.99M lifetime exemption, any further gifts are taxed based on this scale:Gift Amount Over ExemptionTax RateUp to $10,00018%$10,001 – $20,00020%$20,001 – $40,00022%......Over $1 million40%How Is the Gift Tax Calculated?Gift tax applies only to the amount exceeding both:The annual exclusion, andYour remaining lifetime exemptionOnce both thresholds are crossed, you’ll pay based on the rate chart above.Where and How to Report a GiftIf your gift exceeds the annual exclusion:You must file Form 709 (U.S. Gift and Generation-Skipping Transfer Tax Return)This tracks your lifetime exemption usageIt’s due April 15 of the year following the giftSteps to Making a Tax-Compliant GiftUnderstand the limit: $19,000 per recipient in 2025Transfer the gift: via check, wire, deed transfer, etc.Track and report: File Form 709 if you exceed the exclusionWork with a tax advisor: To ensure compliance and maximize your exemption “Clients are often surprised to learn that even informal gifts, like forgiving a family loan, can trigger reporting. Understanding the rules now can help you stay organized and avoid surprises come tax season.” - Kristin Kelley FAQ: Your Gift Tax Questions AnsweredWhat’s the difference between the annual exclusion and the lifetime exemption?Annual exclusion is what you can give per person, per year, tax-free. The lifetime exemption is the total amount you can gift over your life without paying taxDo I need to report a gift to my spouse?No. Gifts to a U.S. citizen spouse are unlimited and not subject to gift tax.What if I paid my grandchild’s tuition directly?That payment is exempt—it doesn’t count toward your annual exclusion or lifetime exemption.Is there a limit to how many people I can gift to?No limit. You can gift $19,000 to as many individuals as you like, tax-free.
