An Overview of the IRS Gift Tax Rules

A gift, under federal tax law, is a transfer of property or money to another person without receiving something of at least equal value in return. This applies whether the transfer is intended as a gift or not. For example, selling a valuable asset to a friend for a fraction of its worth could be considered a gift by the Internal Revenue Service (IRS). The responsibility for paying any resulting tax falls on the donor, the individual giving the gift, rather than the recipient.

Understanding Taxable Gifts

The concept of a taxable gift is primarily defined by specific monetary thresholds set by the IRS, which are adjusted periodically for inflation. For the 2025 calendar year, an individual can give up to $19,000 to any single person without any need to report the gift or pay tax. This is known as the annual gift tax exclusion. A person can make these $19,000 gifts to as many different individuals as they wish within the same year; the limit applies on a per-recipient basis.

If a gift to a single individual exceeds the annual exclusion amount, it does not automatically trigger a tax payment. Instead, the donor is required to file a gift tax return, Form 709, to report the excess amount. For instance, giving $25,000 to one person in 2025 would mean $6,000 is considered a taxable gift that must be reported. This reported amount is then applied against the donor’s lifetime gift and estate tax exemption.

This lifetime exemption is a much larger, unified credit that covers the total amount of gifts an individual can make over their entire life and leave as part of their estate at death before any tax is owed. For 2025, this lifetime exemption is $13.99 million per individual. However, this higher exemption amount is temporary and is scheduled to be reduced by about half at the beginning of 2026. When a gift exceeds the annual exclusion, the excess amount reduces this lifetime exemption. A gift tax is only actually due when an individual’s cumulative reported gifts have completely exhausted their lifetime exemption amount.

Married couples have an additional planning opportunity known as gift splitting. They can combine their individual annual exclusions, allowing them to give up to $38,000 to a single recipient in 2025 without reporting a taxable gift. To utilize this, they must elect to split gifts on their gift tax returns. Similarly, married couples can combine their lifetime exemptions, effectively shielding a total of $27.98 million from federal gift and estate taxes.

Gifts Not Subject to Tax

Certain types of transfers are entirely exempt from the gift tax, regardless of their value. These specific exceptions are not considered gifts for tax purposes and do not require the filing of a gift tax return. Understanding these categories is important for anyone making substantial payments on behalf of another individual.

• Tuition payments, which to qualify for this exemption, must be made directly to the educational institution for tuition expenses only. This exemption does not cover costs for books, supplies, or room and board.
• Medical expenses, which similar to the tuition rule, must be paid directly to the person or institution providing medical care. This can include payments for health insurance premiums.
• Gifts made to a spouse who is a U.S. citizen are not subject to gift tax, in any amount. For spouses who are not U.S. citizens, a much higher annual exclusion applies, which is $190,000 for 2025.
• Gifts made to a political organization for its use are also not considered taxable gifts.

The funds for medical or tuition payments cannot be given to the individual to reimburse them for bills they have already paid; the payment must go straight to the provider.

Required Information for Filing a Gift Tax Return

When a gift exceeds the annual exclusion or when spouses elect to split gifts, a donor must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. The form requires detailed information about the donor, the recipient, and the gift.

• Information about the donor, including their full name, address, and Social Security number.
• Information about the recipient of the gift, known as the donee. This includes the donee’s name, address, and their relationship to you.
• A complete and accurate description of each gift. For cash, this is straightforward, but for property like stocks or real estate, a more detailed description is needed.
• The fair market value (FMV) of the gift on the exact date the transfer was made. The FMV is the price at which the property would change hands between a willing buyer and a seller.
• Your adjusted basis in the asset. The adjusted basis is typically what you originally paid for the property, plus any improvements, minus any depreciation.

The Process of Filing Form 709

The filing deadline for Form 709 is April 15 of the year following the year in which the gift was made. This deadline coincides with the due date for individual income tax returns. If you file for an extension for your personal income tax return using Form 4868, that extension automatically applies to your Form 709 as well.

A separate application for an extension to file Form 709 can be made using Form 8892. An extension to file is not an extension to pay. If you anticipate owing gift tax because your lifetime exemption has been exhausted, you must still estimate and pay the tax by the original April 15 deadline to avoid potential penalties and interest.

Form 709 must be filed by mail; the IRS does not currently offer an electronic filing option for this form. The mailing address for the form depends on whether a payment is being included with the return. The instructions for Form 709 provide the specific addresses to use.

Filing the return serves to officially report gifts that exceed the annual exclusion, which in turn reduces your remaining lifetime gift tax exemption. For most filers, no tax will be immediately due. The form simply documents the use of a portion of the lifetime exemption, preserving a clear record with the IRS for future gifts and for the eventual settlement of your estate.