Gifts are generally not tax deductible for the person giving them

If you give money or property to someone, you cannot deduct that gift on your federal income tax return. The IRS does not allow a deduction for personal gifts, even if the amount is large. This is different from charitable donations to may have access to organizations, which may be deductible under certain conditions.

However, there is a separate issue: whether you owe gift tax on the gift itself. Gift tax is not the same as income tax deduction. It is a tax on the transfer of money or property to another person during your lifetime. Most people never pay gift tax because of annual and lifetime limits set by the IRS.

Key Takeaways

  • Personal gifts cannot be deducted on your income tax return, but they may trigger gift tax reporting requirements depending on the amount.
  • You can give up to $18,000 per person per year (2024) without filing a gift tax return, and this limit changes annually based on inflation.
  • Gifts to spouses who are U.S. citizens and gifts to political organizations have no dollar limit and do not count toward your lifetime gift tax threshold.
  • If you give more than the annual limit to one person, you must file Form 709 with the IRS, even if you owe no tax.
  • Your lifetime gift and estate tax exemption is $13.61 million (2024), meaning most people will never owe gift tax during their lifetime.

The annual gift tax exclusion and how it works

The annual exclusion is the amount you can give to any one person in a calendar year without triggering a gift tax return filing requirement. For 2024, this amount is $18,000 per recipient. This means you can give $18,000 to your child, $18,000 to your sibling, $18,000 to a friend, and so on, all in the same year, with no filing requirement.

The annual exclusion resets on January 1 each year. If you give $18,000 to someone on December 31 and another $18,000 on January 1 the following year, both gifts are within the exclusion for their respective years. The exclusion applies to gifts of cash, property, investments, or anything else of value.

The annual exclusion amount changes most years because it is adjusted for inflation. The IRS announces the new amount in October or November for the following year. If you gave gifts in prior years, check the IRS website or a tax professional to confirm the exclusion that applied in that year.

When you must file Form 709 for gifts

If you give more than $18,000 to a single person in 2024, you must file Form 709 (United States Gift and Generation-Skipping Transfer Tax Return) with the IRS, even if you owe no gift tax. Filing is required to report the excess amount and to use part of your lifetime exemption.

For example, if you give $25,000 to your daughter in 2024, you exceed the annual exclusion by $7,000. You must file Form 709 to report this. The $7,000 does not result in a tax bill, but it counts against your lifetime gift and estate tax exemption of $13.61 million (2024).

Form 709 is filed with your federal income tax return (Form 1040) or as a separate return if you do not file an income tax return that year. The important date is the same as your income tax important date, typically April 15, though you can request an extension.

Gifts that do not count toward the annual exclusion

Certain gifts are unlimited and do not use up your annual exclusion or lifetime exemption. These include gifts to your spouse (if your spouse is a U.S. citizen), gifts to political organizations, and direct payments to a medical provider or educational institution on behalf of someone else.

For medical and education payments, the payment must go directly to the provider or school, not to the person receiving the care or education. If you pay $50,000 directly to a hospital for your grandchild's surgery, this is not a taxable gift. If you give your grandchild $50,000 and they pay the hospital, it is a gift subject to the annual exclusion.

Gifts to charities and may have access to charitable organizations also have no limit and do not count toward your exclusion. However, these gifts may be deductible on your income tax return if you itemize deductions, which is different from the gift tax rules.

Your lifetime gift and estate tax exemption

The lifetime exemption is the total amount you can give away during your lifetime and at death before owing federal gift or estate tax. For 2024, this exemption is $13.61 million per person. If you are married, each spouse has their own $13.61 million exemption.

Every time you give a gift that exceeds the annual exclusion, the excess amount is subtracted from your lifetime exemption. If you give $25,000 to your daughter (exceeding the $18,000 annual exclusion by $7,000), that $7,000 reduces your lifetime exemption from $13.61 million to $13.603 million. You still owe no tax, but the exemption is reduced.

The lifetime exemption is set by federal law and changes periodically. It is scheduled to drop to approximately $7 million per person on January 1, 2026, unless Congress changes the law. This is important to know if you are planning large gifts in the coming years.

State gift taxes and other considerations

A few states have their own gift tax in addition to federal gift tax. As of 2024, only Connecticut, Delaware, Illinois, Louisiana, Mississippi, North Carolina, and Tennessee have state-level gift taxes, though the rules and rates vary. If you live in or give to someone in one of these states, check your state tax authority's website for specific rules.

Most states do not have a gift tax. Even if you live in a state with a gift tax, the federal rules still explore, and you may owe both state and federal tax on large gifts. Some states have lower exemptions or different annual exclusion amounts than the federal government.

Gifts between spouses are generally not subject to state gift tax in any state, and gifts to charities are typically exempt from state tax as well. If you are making large gifts and live in a state with a gift tax, a tax professional can help you understand both the federal and state implications.

Frequently Asked Questions

Can I deduct a gift I gave to a family member on my taxes?

No. Personal gifts to family members, friends, or anyone else cannot be deducted on your federal income tax return. The only gifts that may be deductible are donations to may have access to charities, and those follow different rules. If you gave a gift that exceeded the annual exclusion, you may need to file Form 709, but that is a reporting requirement, not a deduction.

What happens if I give more than $18,000 to one person and do not file Form 709?

The IRS may assess penalties and interest if you do not file Form 709 when required. Filing is mandatory when you exceed the annual exclusion, even if you owe no tax. The best approach is to file the form to document the gift and protect yourself from penalties. A tax professional can help you file if you missed a prior year important date.

Do I have to pay gift tax if I give my child money for college?

If you give money directly to your child and they pay the college, the gift counts toward the annual exclusion. If you give more than $18,000 in one year, you must file Form 709. However, if you pay the college directly, there is no limit and no filing requirement. Direct payments to the educational institution are not considered taxable gifts.

What is the difference between gift tax and income tax on gifts?

Gift tax is a tax on the transfer of property during your lifetime. Income tax is a tax on money you earn or receive. Gifts are generally not income to the recipient, so the person who receives a gift does not report it as income on their tax return. The person giving the gift may owe gift tax if the amount exceeds the annual exclusion, but they cannot deduct the gift as an expense.

Can my spouse and I combine our annual exclusions to give one large gift?

Yes. Married couples can combine their annual exclusions through a process called "gift splitting." If both spouses agree, they can treat a gift as if each spouse gave half, effectively doubling the annual exclusion. For 2024, a married couple can give up to $36,000 to one person without filing a gift tax return. Both spouses must file Form 709 to elect gift splitting, even if neither owes tax.