Giving is a wonderful way to share your wealth with family and causes you care about. But when gifts involve significant value, they can trigger federal tax rules you might not expect. Knowing what qualifies as a gift, and how to report it, helps you avoid surprises and make the most of your generosity.
What Really Counts as a Gift?
Under IRS rules, a gift is any transfer of property where full consideration isn’t received in return. This definition is broader than most people realize. It includes:
- Cash transfers
- Contributions to 529 education plans
- Funding irrevocable trusts
- Real estate or personal property transfers
- Forgiven loans
- Premium payments on a trust-owned life insurance policy or on a policy owned by another
- Transfer of an existing life insurance policy to a trust
- Business interests or closely held stock
- Marketable securities
Gift Tax Limits: Annual & Lifetime
The IRS sets two key thresholds for gift tax planning. First is the annual exclusion: in 2025, you can give up to $19,000 per recipient (or $38,000 per married couple) without filing a gift tax return or using your lifetime exemption. You can make gifts to as many individuals or certain trusts as you wish each year. Beyond that is the lifetime gift and estate exemption-$13.99 million in 2025, increasing to $15 million on January 1, 2026. Gifts above the annual exclusion reduce this exemption, and only when cumulative gifts exceed the threshold do you owe federal gift tax.
Ownership matters too. If a gift comes from an account or asset titled solely in one spouse’s name, it counts against that spouse’s exclusion. Couples often elect gift splitting, treating a gift as half from each spouse, which doubles the exclusion to $38,000 per recipient. Both spouses must consent by signing IRS Form 709. For jointly held assets with rights of survivorship, gifts are automatically treated as made 50/50 by each spouse – so gift splitting isn’t required.
Valuation & Disclosure
When gifting property or business interests, a qualified valuation is essential, not just to determine fair market value, but to meet the IRS’s adequate disclosure rules. Form 709 must include a detailed description of the asset, the valuation method, and supporting documents. If discounts are applied (such as for lack of marketability or minority interest) they must be clearly supported in the appraisal. Why does this matter? Proper disclosure starts the three-year statute of limitations for IRS review. Without it, there is no time limit, and the IRS can challenge your gift indefinitely. Accurate valuation and documentation protect you and ensure your strategy holds up under scrutiny.
Always Exempt: Gifts That Never Count
Some transfers are always tax-free, regardless of amount:
- Tuition paid directly to an educational institution
- Medical expenses paid directly to the provider
- Gifts to a U.S. citizen spouse
- Charitable donations
- Political contributions
Gifting is a meaningful way to share your wealth, but it comes with rules that can impact your overall plan. If you are considering large gifts or have any questions, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
