What is the 2025 gift tax limit?

Are you familiar with the gift tax?

There are many common misunderstandings about the gift tax. This is a tax that may apply when property is transferred from one living person to another, including cash, real estate, and other investments. It’s important not to confuse this with estate tax, which applies to the transfer of property after a person’s passing. The intention behind this tax is to prevent people from bypassing estate taxes by simply giving away their property before they pass away.

Here’s how it works: If you give someone a gift, the person receiving the money does not pay any taxes. However, the person giving the gift may incur tax consequences in the long-term as a result. Don’t be alarmed though - the tax only applies if your gift is above certain annual AND lifetime limits. Although the limits are very high, they are changed frequently by Congress. We’ll discuss the 2025 guidelines in more detail below.

Gift tax limits 2025

It’s important to stay up to date with the most recent changes to the gift tax limits. In 2025, the annual limit is $19,000 per recipient. This means that you can give someone up to $19,000 per year, without reporting the gift to the IRS. Spouses can double the size of their gift to $38,000 by “splitting” it for one recipient. The limit applies to each recipient separately, so you can give $19,000 to multiple people without worrying about tax consequences. For example, a married couple with 3 children can make a cash gift of $38,000 to each child per year (totaling $114,000) without worrying about the gift tax.

So, what happens if you exceed the annual limit?

If you give over $19,000 per year to one person, the excess amount is considered a “taxable gift”. This means, you will need to file a gift tax return (IRS Form 709) to report the transfer that year. However, this does not mean you actually have to pay taxes. This is a common point of confusion around the gift tax.

Taxes are only due after the donor has exceeded their “lifetime” limit, which is $13.99 million in 2025. Any excess annual contributions reduce this lifetime limit. Consider this example:

Your generous Aunt Sally decides to give you $1 million in cash in 2025. Any amount over the $19,000 annual limit is now considered a “taxable gift”. So, your Aunt Sally needs to report a $981,000 gift ($1,000,000 - $19,000) to the IRS by filing a gift tax return for 2025. However, she doesn’t owe any taxes on that amount yet.

The $981,000 is now subtracted from Aunt Sally’s lifetime gift limit of $13.99 million. So, she can now give $13.01 million more in “taxable gifts” over her lifetime before she owes taxes on her gifts. If she doesn't give any more gifts, the remaining balance of $13.01 million will be part of her estate and may be subject to estate tax depending on the total value of her estate at her passing.

The gift tax rate ranges from 18% to 40%, depending on the amount of the taxable gift that exceeds the lifetime exemption. But remember, these taxes only apply after you exhaust your $13.99 million lifetime limit. So, unless you have previously made a large sum of gifts, chances are that no gift tax is owed on current gifts.

What is considered a “gift”?

Some situations can inadvertently trigger the need to file a gift tax return. Although you might not consider these transfers a “gift”, the IRS does:

• Loans: Lending money to a friend or family is considered a gift if the loan is interest-free (the foregone interest may be a gift), or if you later forgive the debt.
• Joint Bank Accounts: Adding a non-spouse to your bank account as a joint owner can be considered a gift if they withdraw funds and they did not contribute to the account. The gift occurs when the non-contributing joint owner withdraws funds for their own benefit.
• 529 Plans: While direct payments for tuition to an educational institution are exempt (see below), contributions to a 529 plan are considered gifts. However, there are special rules for 529 plans that allow you to "front-load" five years' worth of annual exclusions (5 x $19,000 = $95,000 in 2025, or $190,000 for a married couple splitting gifts) into a single year per beneficiary without eating into your lifetime exemption, though a gift tax return is required to make this election.

Gift tax exemptions

There are certain exceptions to the gift tax rule which may apply. This means, gifts of this nature are not counted toward your annual OR lifetime limits:

1. Gifts to a spouse who is a U.S. citizen are exempt from the gift tax. You can give any amount to your U.S. citizen spouse without worrying about the gift limits. (Note: For non-U.S. citizen spouses, the annual exclusion limit is $190,000 for 2025).
2. Charitable donations are also exempt from the gift tax. If you make a gift to a qualified charitable organization, it will not be considered a taxable gift and may also provide an income tax deduction.
3. Gifts made to cover educational or medical expenses are exempt – as long as you pay these expenses directly to the educational institution or medical provider. For example, someone paying for their grandchild’s college tuition should make the payment directly to the school, rather than giving the funds to their grandchild first.

Looking Ahead: The 2026 Sunset Provision

It's crucial to be aware that the current high lifetime gift and estate tax exemption amounts are temporary. Under current law (stemming from the Tax Cuts and Jobs Act of 2017), the lifetime exemption is scheduled to revert to its pre-2018 level (approximately $5 million, adjusted for inflation) on January 1, 2026. This means the exemption could be roughly halved. This makes 2025 a particularly important year for strategic gift planning if you have a sizable estate.

Should I be worried about the gift tax?

It's important to remember that gift taxes are paid by the giver, not the recipient of the gift. So, you do not need to report anything if someone else gives you a gift. However, if you do give a gift, be sure to file a gift tax return if you exceed 2025 annual limits for any individual. This requirement simply allows the IRS to track and deduct from your lifetime gift limit of $13.99 million.

Wealthy individuals should be especially careful when transferring property, using gift limits wisely to maximize tax-free transfer of wealth, especially in light of the potential changes in 2026. For many individuals, it makes more sense to utilize the annual limits and gift property slowly over time, rather than reduce their lifetime limit unnecessarily. If you own a significant amount of property and investments, it's best to speak with a financial advisor to understand how the gift tax may impact your financial situation. A financial advisor at Domain Money can help you use the gift tax rules to your advantage.