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): Following the passage of the 2017 Tax Cuts and Jobs Act, a gift giver has a lifetime gift tax exemption of $11.4 million (increased from $11.18 million in 2018) -- double for a couple. The figure is adjusted each year to reflect cost of living increases.  (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 $11.4 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.