What Is the Gift Tax Limit?

It seems Uncle Sam manages to take a cut of everything these days, but hold up: Do you really have to pay taxes on gifts you give to others? Yes, you might have to. It’s called—get this—a gift tax.

Thankfully, there’s a limit to how much tax you’ll have to pay on any gifts you decide to dish out this year and over the course of your life. In most cases, there’s really no reason to put your generosity on hold.

But even if taxes complicate your gift giving, there’s really nothing like the feeling of giving a gift to someone who appreciates it. In fact, generous people are often happier and more content. When you bless others, you bless yourself.

So, while it’s important to keep taxes in mind, don’t let that distract you from the happiness of giving. Let’s dive into what else you need to know about gifts and taxes so you’re ready to roll when you’re living and giving like no one else.

What Are the 2024 and 2025 Gift Tax Limits?

The gift tax limit (aka the annual gift tax exclusion) in 2024 was $18,000 per recipient.¹ For 2025, the limit has been adjusted for inflation and raised to $19,000.²  

You’ll have to report any gifts you give above that amount to the IRS on your tax return with Form 709.³ So if you bless someone with $20,000 this year, for example, you’ll have to report $1,000 of it when you file.

And remember that the gift limit is applied on a person-by-person basis. That means, if you had the money, you could make it rain dollar bills in 2025 and give $19,000 each to your mom, your brother, your aunt and your friends (you’ll have lots of new “friends” if you start giving away money) without having to report it on your tax return or pay taxes on those gifts.

But toss any of them another buck throughout the year, and you’ll have some more paperwork to do at tax time. However, you can apply any giving over the annual limit to your lifetime gift tax exclusion to avoid having to pay taxes on what you report. In 2025, the limit on this lifetime exclusion was increased to $13.99 million, up from $13.61 million in 2024.⁴

So no, you won’t be taxed on that $100 bill you slipped into your teenage son’s birthday card. Or the $650 washing machine you bought for a friend whose washer broke. In fact, you can actually do a whole lot of giving before getting on the tax man’s radar.

What Is the Gift Tax Rate?

Now, if you somehow manage to blow past the annual gift limit regularly and use up your entire lifetime gift exclusion—and good for you for being so generous—you’ll have to pay the gift tax. Buckle up, because the tax rate can vary between 18% and 40% depending on the amount you’re giving.⁵

Don’t settle for tax software with hidden fees or agendas. Use one that’s on your side—Ramsey SmartTax.

That’s definitely not chump change.

But if you’re in a position to make gifts like this (again, kudos), it’s a good idea to work with a trusted tax pro. They’ll help you make sure that everything’s in order for tax time and that you’re not giving Uncle Sam more than necessary.

What Is Considered a Gift?

Well, first things first. Before getting into the nitty-gritty parts of the tax code, let’s look at what a gift is.

Simply put, any asset—think cash or property—that you give to someone directly or indirectly without getting something of equal value (aka fair market value) in return is considered a gift according to the IRS.⁶ 

A gift could be the stack of cash you gave your son for a phone or your daughter for her wedding. It could also be the car Grandad bought Junior for his high school graduation. Anything you give as gift could have Uncle Sam calling first dibs.

Let’s say you loan a friend $5,000 without charging interest—yep, the government says that’s a gift. Sidenote: It’s also a bad idea. You don’t want to turn your friendship into a banking relationship by throwing a loan into the mix! But if you choose to bless your friend with $5,000, that’s a gift too (and a much better choice).

What about forgiving an old loan? That’s a gift. Giving away real estate? Gift. How about securities, like stocks and bonds? Also a gift. And personal property, like artwork? Yep . . . still a gift.

What Can Be Excluded From Gifts?

That being said, the government does let a few things slide without taking its cut. These types of gifts are not considered taxable:⁷

• Gifts to spouses: Gifts to your spouse of any amount aren’t taxable if they’re a U.S. citizen, so no need to worry about that extravagant pearl necklace or state-of-the-art home theater system you bought for their birthday. And if they’re not a U.S. citizen, the first $190,000 in gifts each year isn’t taxable.⁸
• Charitable donations: Gifts to qualifying charities are not considered taxable gifts. In fact, if you itemize your tax deductions, those donations could lower your tax bill! More on that later.
• Medical and educational expenses: If you’re helping pay for little Sally’s college tuition or medical bills, then you’ll be glad to know that payments made directly to an institution for someone else’s medical or tuition expenses are not subject to the gift tax.
• Gifts to a political organization: Whether you donated a few bucks to your preferred presidential candidate or your neighbor’s campaign for a seat on the school board, those donations won’t be taxed. Hooray for democracy!   

And like we said earlier, gifts to individuals that don’t go over the annual limit for the calendar year are usually safe from taxes.

Who Pays the Gift Tax?

If you’re on the receiving end of a gift, take a deep breath—you won’t have to pay the gift tax or report the gift as income. It’s the person giving the gift (sometimes called the donor) who’s usually responsible for paying any gift tax that might be owed.

If you give someone a gift that’s more than the annual gift tax exclusion, you’ll be responsible for reporting the gift on your tax return and (potentially) paying the gift tax.

But keep in mind that the donor only owes a gift tax if the value of their gift is above the annual exclusion amount ($18,000 per recipient in 2024, $19,000 in 2025) and if the total gifts given over their lifetime exceed the lifetime exemption limit ($13.61 million in 2024, $13.99 million in 2025).

In some situations, you can arrange for the recipient to pay the tax instead, but that’s pretty rare—and a little rude if you ask us.

Are Gifts Tax Deductible?

Certain gifts can be deducted from your taxable income. The catch? These usually need to be in the form of donations to an eligible charity (and can only be deducted if you choose to itemize your deductions).

You can deduct up to 60% of your adjusted gross income for cash contributions to nonprofits. So you can support a cause you care about and earn yourself a significant tax break.

That sounds like a pretty sweet deal, if you ask us.

How to Avoid the Gift Tax

The two big ways to avoid paying the gift tax are the annual gift tax exclusion and the lifetime gift tax exemption. For most people, these exclusions are more than enough to make sure you’re not taxed for your generosity.

Annual Gift Tax Exclusion

Let’s say you become extra, extra generous in 2025 and gift a special friend $20,000. Since the annual exclusion limit for 2025 is $19,000, things get a bit more complicated—and you’ll need to file a gift tax return.

How the Annual Gift Tax Exclusion Works

Let’s say you wanted to help your daughter buy her first home in 2024, so you cut her a $34,000 check. Because you gave her money in 2024, you’d report it on your 2024 taxes (filed in 2025).

To figure out how much is taxable, you’d subtract the annual $18,000 exclusion limit from the total gift amount. In this case, the leftover $16,000 is taxable. So while you would have to file a gift tax return, you’d only be responsible for reporting $16,000 of the $34,000.

But here’s the good news—you still have options on the table to reduce or even avoid the gift tax altogether. You can split the gift with your spouse or apply the “taxable” portion to your lifetime gift tax exemption.

Gift Splitting Between Spouses

If you’re married, each spouse is entitled to the full annual gift tax exclusion. So, looking at the same example, you and your spouse could each give your daughter $17,000 for a total of $34,000 without going over the annual limit—often called gift splitting.

Lifetime Gift Tax Exemption

Another way to get around the gift tax is the lifetime gift tax exemption. This is the total amount you’re able to give away tax-free over your lifetime—above the annual gift tax exclusion limit.

For 2024, the lifetime gift tax exemption was $13.61 million. In 2025, the limit has increased to $13.99 million. The exemption is doubled for married couples for a combined $27.98 million.⁹

And just a quick heads up: The tax reform law of 2017 doubled the lifetime exemption through 2025. But in 2026, it’s set to return to pre-2017 levels of around $5.5 million unless Congress steps in.¹⁰

How the Lifetime Gift Tax Exemption Works

To figure out how this all works, let’s think back to our first example:

In 2024, you gave your daughter $34,000 for a house. The first $18,000 would be free and clear of taxes. For the remaining $16,000, you’ll have to file a gift tax return—but you don’t have to pay taxes on that extra money.

You can choose to apply that amount to your lifetime exemption. In this case, you’d simply subtract $18,000 from your lifetime cap of $13.61 million, leaving you $13.43 million to work with.

So, what’s the point of filing a gift tax return if you don’t have to pay the gift tax?

It’s just a way for the IRS to keep track of your lifetime exemption limit. The more you put toward your lifetime exemption, the closer your estate will be to the threshold for paying taxes after you pass away. If you think your estate will blow past that threshold, then it might make sense to go ahead and pay taxes on gifts now so you can protect your estate later.

Lifetime Gift Tax Exemption and the Estate Tax

The lifetime gift tax exemption is tied to the estate tax. When you pass away, the total amount you put toward your lifetime gift tax exemption is added to the value of your estate. If that combined number is greater than $13.99 million (the same number as the lifetime gift tax exemption), then any money above that is taxed out of your estate.

This means the more money you give above the annual gift tax exclusion, the less money you’ll be able to leave to your heirs tax-free when you die.

But $13.99 million (or $27.98 million for spouses) is such a big threshold that most of us will never reach it. And if your estate does hit $13.99 million—you’re killing it!

As wonderful as gifts are, they can still stir up some confusion, so be sure to work with a tax pro. That way, you can have peace of mind knowing there’s someone in your corner to help make sure you’re making the right calls for your situation.