What You Need to Know About Gift Tax

What You Need to Know About Gift Tax 

If you’re feeling generous and planning to share your wealth with family or friends, you might be wondering whether the IRS is going to come knocking. The good news? Most people can give freely without owing a dime in gift taxes — but there are limits you should be aware of. Let’s break down how the gift tax works and what the exclusion amounts are for 2025. 

What Is the Gift Tax? 

The gift tax is a federal tax on the transfer of money or property when the recipient doesn’t provide something of equal value in return. This could apply to giving cash, real estate, stock, or other assets. 

There are two main limits that determine whether a gift may trigger IRS reporting or potential taxation: 

• The annual gift tax exclusion 
• The lifetime gift tax exemption 

Understanding how these limits work can help you give generously—without any unpleasant tax surprises. 

2025 Annual Gift Tax Exclusion 

In 2025, you can give up to $19,000 per recipient without needing to report it to the IRS. This is a $1,000 increase from 2024. If you’re married, you and your spouse can each gift $19,000 to the same person, for a combined total of $38,000. 

Key Notes: 

• The limit is per person, not per total gifts. You could give $19,000 to your child, $19,000 to your grandchild, and $19,000 to a friend—all in 2025—without filing a gift tax return. 
• If you want to combine your gift with your spouse’s to give $38,000 to one person, you can use a strategy called gift splitting. This requires filing IRS Form 709, even if no tax is owed. 
• Gifts to your spouse (if a U.S. citizen) are unlimited and generally don’t require a gift tax return. 

What If You Go Over the Limit? 

Giving more than $19,000 to one person in 2025 doesn’t mean you’ll owe taxes—but it does mean you’ll need to file Form 709 to report the gift. The amount that exceeds $19,000 simply counts against your lifetime exemption. 

2025 Lifetime Gift Tax Exemption 

The lifetime gift tax exemption allows you to give away a significant amount over your lifetime—beyond the annual limits—without paying gift tax. 

• In 2025, that limit is $13.99 million per person 
• For married couples, it’s $27.98 million 

Let’s say you give your adult child $50,000 in 2025. The first $19,000 is covered by the annual exclusion. The remaining $31,000 reduces your lifetime exemption—but no tax is due at the time. 

Pro Tip: The IRS uses this same lifetime exemption for estate tax. Any amount you use for gifts during life reduces the amount that’s shielded from estate tax when you pass away. 

Heads-Up for 2026 

Unless legislation changes, the lifetime exemption is set to drop significantly in 2026—down to about $5 million per person, adjusted for inflation. If you're considering large gifts, 2025 may be an ideal time to act. 

Gifting and Fixed Indexed Annuities (FIAs) 

At Summerlin Benefits Consulting, we specialize in what we call “safe money strategies”, one of which is Fixed Indexed Annuities (FIAs). Many of our clients own one or more fixed index annuities, so we will dive a little deeper into how gift tax rules may impact those with annuities. 

Gifting Funds Into an Annuity 

If you give someone money to fund an annuity—whether it’s a parent helping a child get started or a child helping a parent or grandparent with their retirement strategy—it counts as a financial gift. If the amount exceeds $19,000, you’ll need to file Form 709 and apply the excess to your lifetime exemption. 

Receiving Gifted Funds for an Annuity 

If you receive a gift to help fund your own annuity, the gift tax rules apply to the giver, not you. However, you may still want to document the gift in case it raises questions later, especially for larger contributions.  Receiving gifted funds to begin your annuity allows the gifter to help you establish a lifetime income stream for retirement, that will grow safely and securely for your future. 

We help our clients understand the best way to structure these kinds of gifts—whether that’s contributing over time to stay under annual limits or using lifetime exemption strategically. 

Gift Tax Triggers to Watch For in 2025 

Even with the generous 2025 limits, here are a few scenarios that can unexpectedly trigger a gift tax filing requirement: 

• Funding a 529 college savings plan with more than $19,000 in a single year 
• Gifting large amounts for weddings, vacations, or home purchases 
• Buying a car or luxury item for someone without compensation 
• Paying medical bills or tuition on someone’s behalf—but not doing it directly to the provider 
• Forgiving a personal loan or giving an interest-free loan 
• Adding someone as a joint owner on your bank account 

Is the Gift Tax Deductible? 

No—gifts to family and friends aren’t tax-deductible. Only donations to qualified nonprofits may be deducted from your income taxes. 

Final Thoughts 

While most people won’t ever owe gift tax, many will trigger filing requirements—especially as they share their wealth through larger gifts or estate planning moves. When combined with strategies like annuities or trust planning, gifting can become a powerful tool. 

At Summerlin Benefits Consulting, we provide expert guidance to help you protect your retirement income, preserve your wealth, and pass it on wisely. We feel that it’s important to be well informed along every step of your retirement planning journey. If you have questions about your current strategies, or would like a no-obligation financial review with one of our licensed professionals, please reach out today. 

Summerlin Benefits Consulting is a financial and insurance services firm and does not provide tax, legal, or accounting advice. The information provided is for general informational purposes only and should not be construed as tax advice. We strongly recommend consulting with a qualified tax professional or advisor to assess your individual situation and ensure compliance with applicable tax laws.