Gift tax rates can be as high as 40%, but it's rare a giver has to pay

  • Gift tax may apply to large gifts of cash or other property.
  • There are several gift tax exclusions, including gifts between spouses.
  • Every taxpayer can give up to $15,000 per person annually — and up to $11.7 million over their life — without triggering taxes.
  • This article was reviewed for accuracy and clarity by Luis Rosa, an expert on Personal Finance Insider’s tax review board. 
  • See Personal Finance Insider’s picks for best tax software »

What is gift tax?

Federal gift tax may apply when someone gives a large gift — of cash or any other type of property — to someone else and receives nothing in return. 

In some cases, depending on the gift’s size, the use of a property or income from a property could trigger gift taxes. Selling something at a greatly reduced cost compared to its value could also be considered a gift.

When gift tax applies, the giver is generally responsible for paying, though the recipient may agree to pay the taxes in some situations.

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How much is gift tax?

The gift tax doesn’t apply to all gifts and situations. Any gift of less than $15,000 is not federally taxable for the years 2018 through 2021. That means you could give up to $15,000 to as many people as you’d like every year without triggering gift tax. For married couples who live in community property states or couples who live in common law states and elect to split gifts, the amount is $30,000.

Here’s what’s excluded from gift tax, according to the IRS:

  • Gifts worth less than the annual gift exclusion amount ($15,000 for 2020 and 2021)
  • Tuition or medical expenses paid directly to an institution
  • Gifts to your spouse
  • Gifts to a political organization
  • Gifts to organizations deemed exempt by the IRS
  • Gifts to a 529 college savings plans in which the contribution — up to $75,000 if you’re single or $150,000 if you’re married — is front-loaded and spread over five years. 

If your gift is larger than the $15,000 annual exclusion, or $30,000 for a married couple, and doesn’t meet one of the exclusions, then you need to file Form 709 to report the gift at tax time. Married couples cannot file a joint gift tax return even in the case where gifts are split. Each spouse should file their own separate return if he or she makes any taxable gifts. But they still probably won’t have to pay taxes on it.

That’s because in 2021, individual taxpayers have an $11.7 million lifetime exemption. The amount of the gift that exceeds the annual limit each year just reduces your lifetime exemption amount.

Gifts of real estate, vehicles, cash, stock, or other valuable investments are situations where you may exceed the annual exclusion. Filing Form 709 also helps you establish the cost basis in the gifted property, which will be necessary to determine if you have a gain or loss if you dispose of it in the future.

If you do trigger the gift tax, rates start at 18% and go up in increments based on the size of the gift above the annual $15,000 limit. The highest gift tax rate is 40% for taxable gifts over $1 million.

Here are the gift tax rates for 2020:

Column AColumn BColumn CColumn D
Taxable amount over —Taxable amount not over —Tax on amount in Column ARate of tax on excess over amount in Column A

Source: IRS

Gift tax examples

  • A married couple gifts $30,000 to their adult daughter for her 30th birthday: In this case, the couple can take advantage of the total gift tax exclusion afforded for spouses and won’t owe any gift tax.
  • A successful businesswoman gives her niece a $35,000 car for college graduation: What a lucky niece! In this case, gift tax would apply on the amount over $15,000, which is $20,000. Chances are, the woman hasn’t used up her lifetime exclusion. While she still needs to file Form 709, she won’t owe any gift tax. If she had used up her lifetime exemption, she would pay an 18% tax rate on the first $10,000 and a 20% rate on the next $10,000. That’s a total of $3,800 in gift tax on the $35,000 gift.

If you have personal gift tax questions, it’s wise to work with a tax professional.

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