Gift: Meaning, Tax Considerations, and Examples

What Is a Gift?

A gift is property, money, or assets that one person gives to another while receiving nothing or less than fair market value (FMV) in return. Under certain circumstances, the Internal Revenue Service (IRS) collects a tax on gifts. Transfers of money or property that are given freely or exchanged for less than market value may be subject to the gift tax if the donor has exceeded the lifetime gift exemption. For 2024, the lifetime gift exemption is $13.61 million.

Gifts and Taxes

The gift tax doesn't apply to relatively small gifts. That is, you would only need to worry about the gift tax kicking in if you give a gift that is worth a substantial amount. In 2024, that amount is $13.61 million. That's the lifetime gift tax exemption amount.

There is, however, a much smaller annual amount—the annual gift tax exclusion—that, if exceeded, must be reported to the IRS. This annual amount itself isn't taxable, as it doesn't equal the lifetime exemption amount, but gifts exceeding the annual amount do need to be reported to the IRS using Form 709.

For the 2024 tax year, the annual gift tax exclusion is $18,000 for an individual who's giving a gift and $36,000 for a married couple filing jointly who's giving a gift. (In 2023, the annual exclusion amounts for individuals and married couples filing jointly were $17,000 and $34,000, respectively.) The thresholds are applied to each person who is the recipient of a gift, meaning as an individual, you could give up to $18,000 each to several people without tax consequences in 2024, as long as you don't exceed the lifetime gift exemption amount ($13.61 million in 2024).

Special Considerations

If you receive a gift, you generally aren't required to report it as income.

Gifts of any amount to spouses or political organizations, and payments of tuition and medical expenses on behalf of others, are generally not taxable as gifts. In the case of gifts used for medical or educational expenses, the gifts must be paid directly to the hospital, school, or other providers in order for the tax exclusion limits to be inapplicable.

Examples

Let's say Melinda and Bonnie are getting married. They might ask their wedding guests to transfer funds to an account to support their honeymoon. On the day of the wedding, some relatives might bring envelopes full of cash with them to the reception.

As long as the fair market value of each gift, made either in cash or any other format, does not exceed $18,000 in 2024 (or $17,000 in 2023), the gift doesn't need to be reported to the IRS. And that's if the gift was given by a single individual—if it was given by a married couple who files their taxes jointly, the limit is $36,000 in 2024 (or $34,000 in 2023). If a gift does exceed this amount, then the gift givers (not the newlyweds) would report the gift using Form 709.

Consider another example. Suppose Steven's father gifts him $13 million on his 17th birthday in 2023. The gift is subject to taxes because it exceeds the $12.92 million lifetime tax exemption limit for 2023.

Finally, consider the example of Rachel, a mother who gifts her son $18,000 each year, starting on his first birthday. She continues the practice until her son turns 25. This gift does not need to be reported to the IRS because it does not exceed the annual or lifetime gift tax limits.

The Bottom Line

A gift differs from other types of financial vehicles, such as investments and loans, because a gift does not involve any expectation or obligation of repayment or a profit in return. A gift in its purest sense is given as a philanthropic gesture, as an act of generosity. A gift can also be given to a charitable organization so the donor can benefit from tax deductions.

In the eyes of the IRS, some gifts are tax-free for both the donor and the recipient, but certain gifts may be subject to taxes. In 2024, if you give a gift worth more than $18,000, you need to fill out Form 709. However, the gift isn't taxed unless you have exceeded the lifetime gift tax exemption limit. In 2024, that limit is $13.61 million.