The federal gift tax threshold for 2024

You do not owe federal gift tax on most gifts you give during your lifetime. The IRS lets you give away a certain amount each year and over your lifetime without triggering a gift tax bill. For 2024, you can give up to $18,000 per person per year without filing any paperwork or owing tax. This is called the annual exclusion.

If you give more than $18,000 to one person in a single year, you must file a gift tax return (Form 709) with the IRS, even if you do not owe tax yet. The amount over $18,000 counts against your lifetime gift and estate tax exemption, which is $13.61 million for 2024. Once you use up that lifetime exemption, gifts above the annual exclusion become taxable.

The annual exclusion amount changes each year based on inflation. It was $17,000 in 2023 and $16,000 in 2022. The IRS announces the new threshold in October or November each year, so check the current year before making large gifts.

Key Takeaways

  • The annual gift tax exclusion for 2024 is $18,000 per recipient, meaning you can give that amount to as many people as you want without filing a gift tax return.
  • Gifts above $18,000 to one person in one year require you to file Form 709, though you may not owe tax if you have lifetime exemption remaining.
  • Your lifetime gift and estate tax exemption is $13.61 million for 2024, and gifts over the annual exclusion reduce this amount.
  • The annual exclusion changes yearly with inflation, so the threshold will be different in 2025 and beyond.
  • Married couples can combine their exclusions, allowing them to give $36,000 per person per year without filing.

How the annual exclusion works with multiple recipients

The $18,000 annual exclusion applies per person, not per year total. This means you can give $18,000 to your child, $18,000 to your grandchild, $18,000 to your sibling, and $18,000 to a friend all in the same year without owing any gift tax or filing a return.

If you are married, you and your spouse can each give $18,000 to the same person in the same year. So a married couple can give $36,000 to their child without any tax consequences. This is called gift splitting, and both spouses must agree to it on the gift tax return.

The exclusion resets on January 1 each year. A gift you give on December 31 and another gift you give on January 1 of the next year count toward two separate annual exclusions, even if they go to the same person.

What happens when you exceed the annual exclusion

If you give more than $18,000 to one person in a year, you must file Form 709 with your tax return. The IRS does not automatically charge you tax on the overage. Instead, the amount above $18,000 is subtracted from your lifetime exemption of $13.61 million.

For example, if you give $25,000 to your niece in 2024, you file Form 709 and report the $7,000 overage. That $7,000 reduces your lifetime exemption from $13.61 million to $13.603 million. You owe no tax now, but you have less room to give away large amounts later without triggering a tax bill.

The lifetime exemption is shared between gifts you give during your life and your estate when you die. If you use up your entire $13.61 million exemption through large gifts before you pass away, any gifts or estate value above that amount would be taxed at 40% (the current estate tax rate). This is why large givers sometimes work with a tax professional to plan their gifts strategically.

Gifts that do not count toward the limit

Certain gifts are completely exempt from the annual exclusion and lifetime exemption. Gifts to your spouse who is a U.S. citizen have no limit — you can give your spouse any amount without filing or owing tax. Gifts to a spouse who is not a U.S. citizen have a higher annual exclusion of $185,000 for 2024.

Payments made directly to a medical provider or educational institution for someone else's tuition or medical bills do not count as taxable gifts, even if they exceed $18,000. The payment must go straight to the provider, not to the person receiving care or education. If you give money to a person and they pay the bill, that counts as a regular gift.

Charitable donations to may have access to organizations also do not count against your annual exclusion. Political contributions to candidates and parties do count as gifts, however, and are subject to the $18,000 limit per recipient per year.

State gift taxes

The federal government is not the only body that can tax gifts. Several states have their own gift tax systems, though the list is small and shrinking. As of 2024, only a handful of states impose a gift tax: Connecticut, Delaware, Louisiana, Mississippi, North Carolina, and Tennessee. Each state sets its own threshold and rates.

If you live in or give to someone in a state with a gift tax, you may owe state tax even if you do not owe federal tax. State thresholds are often lower than the federal $18,000 annual exclusion. You should check your state's tax rules before making large gifts, especially if you are giving to someone who lives out of state.

Some states have repealed their gift tax in recent years, so the list changes. Your state tax authority website will have current information about whether your state taxes gifts and what the rules are.

Reporting gifts on your tax return

If all your gifts in a year are $18,000 or less per person, you do not file anything. You straightforward give the money and move on. The IRS does not require you to report gifts under the annual exclusion.

If you give more than $18,000 to one person in a year, you file Form 709 (United States Gift Tax Return) with your federal tax return. You do this even if you do not owe tax, because the IRS needs to track how much of your lifetime exemption you have used. Filing Form 709 is how you report the overage and elect gift splitting if you are married.

Form 709 is due on April 15 of the year after you make the gift, the same important date as your income tax return. If you file your income tax return early, you can file Form 709 at the same time. If you get an extension on your income tax return, the extension applies to Form 709 as well.

How gift tax differs from income tax

A gift is not income to the person who receives it, so the recipient does not owe income tax on the gift amount. If you give your child $25,000, your child does not report it as income and does not pay income tax on it. The tax burden, if any, falls on the giver, not the receiver.

Interest, dividends, or rental income from a gift are different. If you give someone a savings account and they earn interest on it, that interest is income to them and they owe income tax on it. If you give someone a rental property and they collect rent, that rent is their income. The gift itself is tax-free, but income generated by the gift is taxable to whoever receives it.

This is why the gift tax and income tax are separate systems. You might owe gift tax on the transfer itself, while the recipient owes income tax on any earnings from what you gave them.

Frequently Asked Questions

Do I owe gift tax if I give money to my adult child?

No, not if the amount is $18,000 or less per year. You can give your adult child any amount up to $18,000 without owing tax or filing paperwork. If you give more than $18,000 in a single year, you must file Form 709, but you still may not owe tax if you have lifetime exemption remaining.

What if I give someone $20,000 — do I owe tax on the whole amount or just the overage?

You only owe tax on the overage if you owe tax at all. The $18,000 is covered by your annual exclusion. The $2,000 over the limit counts against your $13.61 million lifetime exemption. You file Form 709 to report it, but you owe no tax unless you have already used up your entire lifetime exemption.

Can I give $18,000 to the same person twice in one year without owing tax?

No. The $18,000 annual exclusion is per person per calendar year, not per gift. If you give someone $10,000 in January and $10,000 in December, that is $20,000 total in one year, and $2,000 of it counts against your lifetime exemption. You must file Form 709.

Does my spouse's gift count toward my $18,000 limit?

No, each person has their own $18,000 annual exclusion. If you give $18,000 to your child and your spouse gives $18,000 to the same child in the same year, that is $36,000 total and neither of you owes tax. Your exclusions are separate unless you elect gift splitting on Form 709.

What is the difference between the annual exclusion and the lifetime exemption?

The annual exclusion is $18,000 per person per year and resets every January 1. The lifetime exemption is $13.61 million total over your entire life and is shared with your estate. Gifts over the annual exclusion reduce your lifetime exemption but do not trigger tax unless you exceed the lifetime amount.