For retirees, the federal gift tax is an important consideration when planning to share wealth with family or friends. Understanding gift tax rules can help retirees balance generosity with long-term financial and estate planning goals, ensuring their legacy is preserved while minimizing potential tax liabilities.

What Is The Gift Tax Limit For 2025?

The 2025 gift tax annual exclusion is $19,000 per recipient. This means you can give up to $19,000 to any individual in a single year without having to file a gift tax return or count it against your lifetime gift tax exemption.

If you’re married, you and your spouse can combine your exclusions for a total of $38,000 per recipient in 2025 through a process called gift splitting.

The lifetime gift and estate tax exemption for 2025 is $13.99 million per individual. Gifts exceeding the annual limit reduce this lifetime exemption before any taxes are owed.

How Does The Federal Gift Tax Work?

What Is Considered a Gift?

• In the context of the gift tax, a gift is any transfer of money, property, or other assets for which the giver (called the donor) does not receive equal compensation.
• Examples include giving cash, transferring property, forgiving a loan, or allowing someone to use property rent-free.

Annual Gift Tax Exclusion

• In 2025, you can give up to $19,000 per recipient per year without it being subject to the gift tax.
• Since the exclusion is per recipient, you could give $19,000 to one friend and then $19,000 to another friend, and not incur taxes.
• Married couples can combine their exclusions for a total of $38,000 per recipient per year.

Lifetime Gift Tax Exemption

• The lifetime exemption is tied to the estate tax exemption. In 2025, it is $13.99 million per individual.
• Gifts exceeding the annual exclusion count toward your lifetime exemption. If your lifetime gifts exceed this amount, the excess is taxed.

Reporting Gifts On Your Taxes

• If you exceed the annual exclusion, you must file IRS Form 709 (United States Gift and Generation-Skipping Transfer Tax Return) with your federal income tax return.
• Filing does not mean you owe taxes unless your total gifts exceed your lifetime exemption.

Gift Tax Rates

• If your gifts exceed the annual and lifetime exclusions, the tax rate ranges from 18% to 40%, depending on the amount over the exemption.

Who Pays the Gift Tax?

• The donor (the person giving the gift) is responsible for paying the gift tax. The recipient generally does not owe any taxes on the gift.

Gifts That Are Not Taxable

Certain gifts are exempt from the gift tax, including:

• Gifts to spouses (if the spouse is a U.S. citizen).
• Tuition payments made directly to an educational institution.
• Medical expenses paid directly to a healthcare provider.
• Charitable contributions to qualifying organizations.

Why Does the Gift Tax Exist?

• The gift tax prevents individuals from avoiding estate taxes by transferring wealth to others during their lifetime.

Planning Tips

• Use your annual exclusion to distribute wealth without triggering the gift tax.
• Consider paying tuition or medical expenses directly for loved ones to avoid reducing your exclusions.
• Consult a tax advisor for strategies that align with your estate planning goals.

By understanding these rules, you can navigate the gift tax system effectively and plan your gifting to minimize tax impacts. Have questions about the federal gift tax? Contact Zynergy Retirement Planning today.