Taxes 2025 – Gift Tax Exclusion Increase

Gift Tax Exclusion Increase

For the 2024/2025 tax season, the IRS has increased the annual gift tax exclusion to $19,000 per recipient, up from $18,000 in the 2023/2024 tax season. This represents a $1,000 increase that reflects adjustments for inflation. Married couples can combine their exclusions, allowing them to gift $38,000 per recipient in 2024/2025, compared to $36,000 in 2023/20242.

If a donor gives a gift exceeding the annual exclusion amount (e.g., $19,000 per recipient for 2025), the donor must file Form 709 (Gift Tax Return) to report the excess amount. However, taxes are generally not immediately owed unless the donor’s lifetime gifts exceed the lifetime exclusion limit—$13.99 million for 2024/2025 up from $12.92 million in 2023/2024—an amount that represents the total value of gifts and estate transfers that can be made during a person’s lifetime without incurring federal gift or estate taxes.

Gift Tax

So, what is a Gift Tax? As defined by the IRS, it is a federal tax on the transfer of property or money from one individual to another without receiving something of equal value in return. This tax applies whether the donor intends the transfer to be a gift or not. Gifts can include cash, real estate, stocks, or other assets. Gifts are separate from income and are not considered taxable income for the donee (recipient) under IRS rules. Certain exclusions, such as the annual exclusion limit and gifts to spouses or charities, may apply, including exclusions for educational and medical expenses if paid directly to an institution or provider.

The annual exclusion amount is the maximum value of gifts a donor can give to each recipient within a calendar year without incurring gift tax or filing a gift tax return. For example, in 2024, the annual exclusion amount was $17,000 per recipient. Gifts within that limit were entirely excluded from the Gift Tax, ensuring donors could make tax-free transfers up to the specified threshold each year. Again, as described above, only when total gifts, exceed the taxpayer’s lifetime exclusion, e.g., $12.92 million for 2023/2024, does gift tax apply.

To be clear, if the value of gifts exceeds the exclusion limit or a gift is made to trusts or to pay for someone else’s medical/educational expenses without direct payment to the institution the donor must file a gift tax return—a document that taxpayers file with the IRS: Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return. The deadline for filing Form 709 is tied to the calendar year, not a fiscal year, on April 15th of the year following the year in which the gift was made.

IRS Form 709 (Gift Tax Return) - Simple Example for 2023 - Step-by-Step Guide

The IRS taxes gifts above the exclusion amount primarily to prevent individuals from using untaxed transfers of wealth as a way to circumvent income and estate taxes. Without a gift tax, individuals could transfer significant assets to others tax-free undermining the integrity of the income and estate tax; the tax ensures that wealthier individuals contribute a fair share to taxes, maintaining equity across taxpayers; by tying gift taxes to the lifetime estate and gift tax exclusion it allows substantial tax-free transfers while capping excessive, untaxed wealth transfers.

Conclusion

For the 2024/2025 tax season, the IRS raised the annual gift tax exclusion to $19,000 per recipient, up from $18,000 in 2023/2024, reflecting inflation adjustments. Married couples can combine exclusions, gifting up to $38,000 per recipient. If gifts exceed these limits, donors must file Form 709 (Gift Tax Return), but taxes are only owed if lifetime gifts surpass the exclusion limit—$13.99 million for 2024/2025 (up from $12.92 million in 2023/2024). Gifts are not taxable income for recipients, and exclusions apply for educational, and medical expenses paid directly, as well as gifts to spouses and charities.