The gift tax rate: what you need to know
Gift tax isn’t something that most of us lose much sleep over. It only becomes payable if a gift exceeds the financial limit set by the IRS – but there are rules. Here we look at what gift tax is, what qualifies for gift tax, the current rates, how you might avoid it, and how to calculate it.
What is gift tax?
Gift tax is a federal tax on transfers of money or property where the giver receives either nothing or less than the value in return. The IRS will not intervene unless the amount of the gift exceeds the limit it has set for that year.
In almost every case, the giver or donor is responsible for paying gift tax where it’s due. However, as a recipient, you might have to pay capital gains tax in the future – if you decide to sell a gifted property, for example.
How much you will pay in capital gains tax will depend on a number of factors, including how long you owned the asset before selling, your filing status, and your taxable income.
What is the gift tax limit for 2023?
For 2023 – in other words, for taxes filed in 2024 – the limit is increasing to $17,000, up from last year’s limit of $16,000. So now you can give up to $17,000 without worrying about tax liability on this gift.
Can you avoid gift tax?
There are two ways to avoid gift tax when completing your tax return.
The first, as we’ve mentioned, is to make sure that any gift you give in a year doesn’t exceed the limit for that year – currently $17,000.
The second way involves the lifetime exclusion. For 2023, the lifetime exclusion is $12.92 million per person; you can double the figure for a married couple. The lifetime exclusion is beneficial if you plan to give away more than the annual limit. For example, if you plan to gift $50,000 to a family member in 2023, you’re clearly going to go over the $17,000 limit by $33,000 and will need to file a gift tax return. The good news is you probably won’t have to pay it because it can be offset against your lifetime exclusion. The same applies every year, provided you don’t exceed that pretty sizable lifetime exclusion.
How do you calculate gift tax?
Gift tax is based on a series of tax brackets, just like regular income tax. Rates range between 18 percent and 40 percent. The table below shows you the rates for different gift amounts that exceed the annual exclusion limit.
| Gift value above the annual exclusion rate | Tax rate |
|---|---|
| Gift value above the annual exclusion rate | Tax rate |
| Up to $10,000 | 18% |
| $10,001 to $20,000 | 20% |
| $20,001 to $40,000 | 22% |
| $40,001 to $60,000 | 24% |
| $60,001 to $80,000 | 26% |
| $80,001 to $100,000 | 28% |
| $100,001 to $150,000 | 30% |
| $150,001 to $250,000 | 32% |
| $250,001 to $500,000 | 34% |
| $500,001 to $750,000 | 37% |
| $750,001 to $1,000,000 | 39% |
| More than $1,000,000 | 40% |
Are any gifts safe from the gift tax?
Taxable gifts include cash, checks, property, interest-free loans, and anything you sell below market value.
Here’s an at-a-glance list of gifts that you can give without having to file a gift tax form or face a gift tax liability:
Anything you give to a spouse who is a US citizen.
Anything you give to a dependent.
Charitable donations.
Political donations.
Money paid to medical services, health insurance providers, or educational establishments on behalf of someone else.
It’s important to remember that if your spouse is not a US citizen, you can only give them $157,000 each year. Anything more is subject to gift tax.
Gift tax is relatively straightforward, and given the lifetime exclusion rules, you shouldn’t find yourself on the wrong side of the regulations. You just need to know what to do in any given year and understand the exclusion rates. If you’re in any doubt about gift tax and where you stand, talk to a financial advisor.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.