Taxable Gifts: What They Are and How to Report Them

The U.S. federal gift tax applies to the transfer of property when the giver, or donor, receives nothing or less than the property’s full value in return. This tax is designed to prevent individuals from avoiding estate taxes by giving away their assets before death. The responsibility for paying the gift tax falls on the donor, not the recipient.

This means any transfer of property without adequate consideration is potentially a gift. While the concept is broad, covering money, property, and other assets, most gifts do not result in a tax payment. This is due to various exclusions and exemptions in the tax code, which allow for ordinary generosity without tax consequences.

Determining if a Gift is Taxable

A transfer is considered a gift by the IRS when property is given away for less than its full value. This broad definition covers assets like cash, stocks, real estate, and business interests. However, not all transfers are subject to tax because of the annual gift tax exclusion. This allows an individual to give up to a certain amount to any number of people each year without tax implications. For 2025, this amount is $19,000 per recipient.

The annual exclusion is applied on a per-person basis. For instance, an individual could give $19,000 to each of their three children in 2025, for a total of $57,000, without any of it being considered a taxable gift. If a gift to a single individual exceeds the annual exclusion for that year, the donor may be required to file a gift tax return.

Beyond the annual exclusion, certain payments are not considered gifts. Payments made directly to an educational institution for someone else’s tuition are exempt from the gift tax. Similarly, payments made directly to a medical facility for another person’s medical expenses are not treated as gifts. For these exclusions to apply, the payment must be made directly to the school or medical provider, not to the individual who then pays the bill.

Calculating the Taxable Amount and Tax Due

When a gift exceeds the annual exclusion, the first step is to determine the gift’s value. The standard is Fair Market Value (FMV), which is the price the property would sell for on the open market. For cash gifts, the value is straightforward. For assets like stocks, the FMV is the average of the high and low trading prices on the date of the gift. Valuing real estate or a private business interest is more complex and often requires a formal appraisal.

The next concept is the unified credit, also known as the lifetime gift tax exemption. This is a substantial amount each individual can give away in taxable gifts over their lifetime before any tax is owed. For 2025, the lifetime exemption is $13.99 million per person. When you make a taxable gift, you file a return to report it, and that amount is subtracted from your lifetime exemption. No tax is paid until your total taxable gifts exceed this exemption.

Most people who file a gift tax return will not owe any tax. Married couples can use gift splitting to combine their annual exclusions for a single gift. For example, in 2025, a married couple can jointly give up to $38,000 to one person without making a taxable gift. However, they must file a gift tax return to signify they are splitting the gift.

Information Required for the Gift Tax Return

To report a taxable gift, you must use Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. This form is required if you give more than the annual exclusion amount to any single person, or if you split gifts with your spouse, even if no tax is due. Gathering the correct information beforehand simplifies the process.

You will need to provide several pieces of information. The official Form 709 and its instructions can be downloaded from the IRS website.

• Your full name and address (the donor).
• The full name, address, and relationship to you of the gift recipient (the donee).
• A clear description of the gift, such as the number of shares and company name for a stock gift.
• The gift’s Fair Market Value (FMV) on the date of the transfer.
• Your adjusted basis in the property, which is what you paid for the asset, plus any improvements, minus depreciation.

How to Submit the Gift Tax Return

The filing deadline for Form 709 is aligned with the income tax deadline, April 15 of the year following the gift. If you file for an extension for your federal income tax return, that extension automatically applies to your gift tax return as well.

The IRS accepts electronic filing for Form 709. If you file by mail, the mailing address depends on whether you are including a payment. The instructions for Form 709 provide the correct addresses based on your location and payment status.

After filing, the IRS records the taxable portion of your gift and applies it against your lifetime gift tax exemption. You will not receive a bill or confirmation unless there is an error on the return or you owe tax because your lifetime exemption has been used. The primary purpose of filing for most individuals is to track the use of their exemption.