Gift Tax and Exclusion

Generally, a donor (payer) is responsible for paying the gift tax for gift transfers to the donee (recipient or payee). Under some special arrangements, the recipient or donee may agree to pay the IRS taxes.

This 2022 IRS publication 559 covers estate and gift taxes.  Search other IRS publications or forms. Learn more about estate taxes.

Any gift is technically a taxable gift. However, here are sample gift tax exclusions and exceptions.

1. Gifts that are within the annual gift tax exclusion for the tax year - see below. 
2. Tuition, Educational or Medical Expenses a donor or payer pays for someone. These are the educational and medical exclusions. You will not owe tax on any amount paid for someone else's tuition or medical bills. The payment must be made directly to the educational or medical institution and not to the person receiving the education or medical care.
3. Gifts a Taxpayer Makes to His or Her Spouse are excluded: You do not have to pay taxes on any amount given to your spouse as a gift, unless they are not a United States Citizen. However, if you do give a gift to your spouse who is not a U.S. Citizen, you will pay tax if it is over the exclusion amount of $164,000 in 2022 (the amount was $159,000 for 2021 and will be $175,000 in 2023).
4. Gifts made to any Political Organization for its use. Political donations are considered gifts, not deductible charitable contributions, and you may exclude any amount given to political organizations. The organization must use the money for its own purposes and may not be acting as an intermediary to dispense the funds to a third party.
5. Gifts to Qualifying Charities are deductible from the value of the gift(s) made. Charitable contributions made to qualifying charities are not only deductible on itemized tax returns (for your 2022 return, you may be able to deduct $300 and you don't have to itemize your deductions), you may also deduct the value of your charitable donations from the amount of Gift Taxes you owe.
6. Find out the gift tax regulations by state.

For example, can my parents give me a sum of money as a gift, $50,000? How do I avoid gift tax? Is there a limit on how much money I can give as a gift?

When you give a gift of money or property to someone, you may owe a Gift Tax. You, as the one who gives the gift, are usually the person responsible for paying the gift tax. A taxable gift is considered to be a transfer of any money or property to another person with no expectation of full compensation or repayment of at least equal value. Reduced-interest or interest-free loans may be considered gifts for tax purposes.

Here are four factors you need to know if you are giving money or property to someone: 

1. If you give someone a gift or gifts of money or property and the value is over the annual gift exclusion amount, you will generally owe gift taxes.
2. If you give a gift of property, taxes must be paid on the fair market value of the item (not the purchase price, nor the original value).
3. You do not have to pay tax on gifts totaling less than (or equal to) the annual exclusion amount of $16,000 per recipient in 2022. (For 2021 and 2020 returns, it was $15,000; for 2023 returns, it will be $17,000).
4. You do not have to pay tax on gifts that qualify for other exclusions (see below).

Additionally, you can give a gift over multiple years to avoid taxation as long as it is under the $16,000 limit. For example, if you wanted to give a gift of $50,000, you could pay tax on $34,000 if you gave this in one year. However, if you spread this out over four years in four payments of less than $16,000 each, you would not owe tax on this.

Note: If you receive a gift from certain foreign persons and the amount exceeds $17,339, this must be reported to the IRS in the year you receive it. For 2021, this amount was $16,815; for 2023, it will be $18,567.

Gift Tax Exclusions Amounts by Tax Year

In 2022, you may give someone up to $16,000 in gifts before paying any gift tax (the amount was $15,000 for Tax Year 2021; for 2023, it is $17,000). If you still need to file your 2021 Tax Return, find 2021 Tax Forms to prepare and paper file since 2021 and earlier tax years can no longer be e-filed). The $16,000 annual gift exclusion is a limit on nontaxable gifts per person and you can give multiple people up to $16,000 each without incurring any tax liability. However, the amounts of your annual gift exclusions are limited to a lifetime total of $12,060,000 for Tax Year 2022 ($11,700,000 for Tax Year 2021). For gifts made to spouses who are not U.S. citizens, the annual exclusion is $157,000 in 2022 and $175,000 in 2023.

The annual gift tax exclusion amounts per spouse or two spouses.

Gift Splitting

Married couples may split the value of gifts given together as a couple, which effectively doubles the annual gift exclusion for joint filers. Married couples may exclude a split gift of up to $30,000 per person per year. If a gift is made of community property, each spouse will be considered to be giving half the fair market value of the gift.

In 2022, the individual gift exclusion of $16,000 is portable for married couples. This means that if one spouse does not use up their $16,000 limit, the other spouse may use it.

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