How Does the Federal Gift Tax Work?

A federal tax is imposed upon all gifts from an individual to others during his/her lifetime. This tax is incurred whenever a gift (such as stocks, jewelry, real estate) is made; it is paid by the gift giver, not the recipient.

There are two main exclusions associated with the federal gift tax:

(1) The lifetime gift tax exemption (or the lifetime exemption): The 2017 Tax Cuts and Jobs Act allows the gift giver to give away over his or her lifetime $11.2 million -- double for a couple--starting in 2018, and before December 31, 2025 (amounts indexed for inflation).  The amount may adjust each year based on cost of living factors. (In 2026, the basic exclusion amount reverts back to the 2017 levels--$5.4 million per individual, or $11.2 million per married couple.)

(2) The annual gift tax exclusion: This allows the gift giver to give $15,000 a year in cash or other assets to as many people s/he want without having it count against the $11.2 million lifetime exemption. Spouses can double the annual exclusion and gift up to $30,000 per year.

Other exceptions to the imposition of the federal gift tax include:

(1) transfers to qualified political organizations are not subject to gift tax (although there are many laws which limit the amount that a person can contribute to a political organization),

(2) gifts to pay tuition to a qualified educational organization or to persons who qualify as a provider of medical care made on behalf of another individual are excluded,

(3) loans of qualified artwork are not treated as a transfer subject to gift tax under certain circumstances,

(4) an unlimited gift tax marital deduction when property is transferred to a surviving United States citizen spouse of the donor (so long as certain prerequisites are met).

These exceptions enable most people to make gifts without incurring any federal gift tax.