Giving money or property to a loved one can be a generous act—but did you know that certain gifts may trigger federal tax rules? While most gifts are not taxed, understanding the basics of the gift tax can help you avoid unexpected consequences and ensure proper reporting.
What Counts as a Gift?
For federal tax purposes, a gift is any transfer of money, property, or assets without receiving something of equal value in return.
If you make a gift, you—as the donor—may be required to file IRS Form 709, and in some cases, you may owe gift tax (which can be as high as 40%).
Important: The gift tax is paid by the giver, not the recipient. The person receiving the gift does not report it as income.
Why Most Gifts Aren't Taxed
Although the gift tax exists to limit tax-free wealth transfers, most people avoid it through key exclusions and exemptions:
1. Annual Gift Tax Exclusion
In 2025, you can give up to $19,000 per person—to as many people as you want—without any tax or IRS reporting.
Example: Give $19,000 each to three children, totaling $57,000, and still remain under the radar.
2. Gift Splitting for Married Couples
Married couples can combine their exclusions, allowing gifts of up to $38,000 per recipient in 2025 with no tax implications.
3. Lifetime Estate and Gift Tax Exemption
Beyond the annual exclusion, a much larger lifetime exemption applies:
$13.99 million per individual
$27.98 million per couple
Gifts that exceed the annual exclusion still reduce your lifetime exemption—even if no tax is owed. In these cases, you must file Form 709.
Gifts That Are Always Tax-Free
Some types of gifts are always excluded from gift tax, including:
Contributions to qualified charities
Tuition payments made directly to educational institutions (room and board excluded)
Medical payments made directly to providers
Spousal gifts (between U.S. citizen spouses)
Gifts to political organizations
Direct vs. Trust-Based Gifting
Direct gifts, such as writing a check to a family member, are straightforward—but you lose all control once the gift is made.
For those wanting to retain some control, trust-based gifting may be a better fit. By gifting through an irrevocable trust, you can reduce your taxable estate while controlling when and how beneficiaries receive the assets.
Trust strategies involve complex legal and tax issues. It's best to consult with an estate planning attorney or financial advisor before setting one up.
Next Steps
Understanding how the gift tax works—and when you need to report or file—can help you make smarter, more tax-efficient decisions when giving. Whether you're planning small annual gifts or building a larger estate strategy, being informed is your first step. If you have questions, please contact the team at TrueBlaze Advisors.