Gift Tax Explained
The federal gift tax and estate tax share a unified exemption. Understanding how gifts work is essential to effective estate planning.
The bottom line
Gift and estate tax share one lifetime exemption, now a permanent $15M per individual, use it during life via gifts and there's less left at death.
- $18,000
- Annual exclusion, per recipient per year
- $15M
- Unified lifetime exemption, gift + estate combined
- 0
- Times the unified exemption has decreased since 2010
A gift above the annual exclusion uses lifetime exemption, it doesn't create separate tax liability while the unified exemption remains available.
The Basics
The federal gift tax applies when you transfer property to someone without receiving full value in return. However, most gifts never trigger actual tax liability because of two powerful exclusions:
- Annual exclusion: $18,000 per recipient per year (2025). You can give this amount to as many people as you want without using any of your lifetime exemption.
- Lifetime exemption: a permanent $15 million as of 2026 (One Big Beautiful Bill Act). This is unified with the estate tax exemption, every dollar you use for gifts reduces the exemption available at death.
The Gift-Estate Connection
This is the critical point most people miss: the gift tax and estate tax share the same exemption. If you gift $5 million during your lifetime (above the annual exclusion), your remaining estate tax exemption drops from $15M to $10M.
This is why estate planning attorneys consider lifetime gifts and death transfers together, they're different chapters of the same tax story.
Annual gift-tax exclusion history
| Year | Per-recipient exclusion | Married couple split |
|---|---|---|
| 2018 | $15,000 | $30,000 |
| 2022 | $16,000 | $32,000 |
| 2023 | $17,000 | $34,000 |
| 2024 | $18,000 | $36,000 |
Eighteen thousand dollars per recipient, every year, no paperwork required.
The Shared Lifetime Exemption, 2010-2026
Unified gift + estate tax exemption, modern era
Per individual, in millions of dollars
This is the SAME number the estate-tax exemption uses, every dollar spent gifting during life is a dollar less available at death. It has only ever risen since 2010.
What Counts as a Taxable Gift?
- Cash gifts above $18,000/year to a single recipient
- Below-market loans (the forgone interest is a gift)
- Transferring property at below fair market value
- Adding someone to a bank account or property deed
- Paying someone's expenses (except medical or tuition paid directly to the institution)
What Doesn't Count?
- Gifts to your spouse (unlimited marital deduction, for US citizen spouses)
- Gifts to qualified charities
- Tuition paid directly to an educational institution
- Medical expenses paid directly to the provider
- Political contributions
- Gifts within the annual exclusion ($18,000/person/year)
Gift Splitting for Married Couples
Married couples can "split" gifts, meaning each spouse is treated as making half the gift. This effectively doubles the annual exclusion to $36,000 per recipient per year. Gift splitting requires filing Form 709 even if no tax is due.
The 2026 "Sunset" and Gift Planning
The TCJA's doubled exemption ($13.99M in 2025) was scheduled to sunset after 2025 and revert to roughly $7 million. That did not happen: the One Big Beautiful Bill Act (July 2025) repealed the sunset and set a permanent $15 million per-individual exemption ($30 million per couple) effective 2026, indexed for inflation. The old year-end "use it or lose it" pressure no longer applies.
The IRS has confirmed through regulations that gifts made under a higher exemption will NOT be "clawed back" if the exemption later decreases. With the exemption now a permanent $15 million, no decrease is currently scheduled, but the anti-clawback rule remains the IRS position should the law change in the future.
Lifetime gifting can still be worthwhile for larger estates, because it removes future appreciation from the taxable estate and can help with state-level estate taxes and non-tax goals.
Filing Requirements
You must file Form 709 (United States Gift Tax Return) if you:
- Give any individual more than $18,000 in a year
- Gift-split with your spouse
- Give a future interest gift (even if under $18,000)
- Transfer to a trust (even within the annual exclusion, in some cases)
Form 709 is filed with your income tax return. The filing deadline is April 15 (or with extension).
What to do with this
Gifting during life and passing assets at death draw from the same pool of exemption.
- The $18,000 annual exclusion is separate from the lifetime exemption, use it every year with zero paperwork. Estate planning basics
- A gift above the annual exclusion uses lifetime exemption now, leaving less available at death. How the exemption changed
- Gifts made under a higher exemption are protected from clawback if the exemption ever falls. Estimate your tax burden
This is general information, not tax advice. Gift-tax strategy depends on your full financial picture, consult a CPA or estate planning attorney.
Every figure on PlainEstate is rendered directly from IRS Statistics of Income and state statutory data, no number is typed in by an editor. This page draws directly on IRS Statistics of Income and state statutory data, no figure is typed in by an editor. See our editorial standards & corrections policy, the methodology behind these numbers, the data changelog, or report a data error about this page.