Insider's experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our our partners, however, our opinions are our own. Terms apply to offers listed on this page.
Blend Images - Ned Frisk/Getty
- 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 each person up to $16,000 per annually without having to file a gift tax return or pay gift taxes.
- 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.
How much is gift tax?
Any gifts given to an individual totaling less than $16,000 is not federally taxable for the 2022 tax year. That means you could give up to $16,000 to as many people as you'd like without triggering gift tax or needing to file a gift tax return. 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 $32,000.
What counts as a gift to the IRS?
Here's what's excluded from gift tax, according to the IRS:
- Gifts worth less than the annual gift exclusion amount ($16,000 for 2022)
- 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 is front-loaded and spread over five years.
If your gift is larger than $16,000 or $32,000 for a married couple and doesn't meet one of the exclusions, then you need to file Form 709 to report it 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 2022, individual taxpayers have a $12.06 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.
Gift tax rates for 2022
| Column A | Column B | Column C | Column D |
| Taxable amount over — | Taxable amount not over — | Tax on amount in Column A | Rate of tax on excess over amount in Column A |
| - | $10,000 | - | 18% |
| $10,000 | $20,000 | $1,800 | 20% |
| $20,000 | $40,000 | $3,800 | 22% |
| $40,000 | $60,000 | $8,200 | 24% |
| $60,000 | $80,000 | $13,000 | 26% |
| $80,000 | $100,000 | $18,200 | 28% |
| $100,000 | $150,000 | $23,800 | 30% |
| $150,000 | $250,000 | $38,800 | 32% |
| $250,000 | $500,000 | $70,800 | 34% |
| $500,000 | $750,000 | $155,800 | 37% |
| $750,000 | $1,000,000 | $248,300 | 39% |
| $1,000,000 | - | $345,800 | 40% |
Source: IRS
Gift tax examples
- A married couple gifts $30,000 cash 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 or have to file any gift tax returns..
- A successful businesswoman gives her niece a $36,000 car for college graduation: What a lucky niece! In this case, a gift tax return would need to be filed as it is above the $16,000 annual exclusion. There probably won't be any gift taxes due as chances are, the woman hasn't used up her lifetime exclusion. 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.
Eric Rosenberg