When it comes to gifting, the IRS has specific rules. A gift is defined as any transfer of money, property, or the use of property where you don’t expect something of equal value in return. Selling something for less than its full value or offering an interest-free (or reduced-interest) loan can also be considered a gift. What Gifts Are Excluded from Taxes?
While the general rule is that all gifts are taxable, there are several key exceptions. The following are types of gifts the IRS recognizes as non-taxable:
Annual Exclusion Gifts Each year, you can gift up to a certain amount to an individual without triggering gift taxes. For 2024, the annual exclusion limit is $18,000 per recipient.
Tuition Payments Direct payments made to an educational institution for someone’s tuition are not considered taxable gifts. However, this does not cover expenses such as room and board, books, or supplies.
Medical Expenses If you pay someone’s medical bills directly to the institution, these payments are also excluded from gift taxes.
Gifts to Your Spouse Transfers to your spouse are tax-free, with no limits.
Charitable Gifts Contributions to qualifying charities are deductible from the value of your taxable gifts.
Political Gifts Contributions made to a political organization for its use are excluded from gift taxes.
Leveraging the Annual Gift Tax Exclusion
The most common method of gifting tax-free is through the annual gift tax exclusion. In 2024, the limit is $18,000 per recipient. For married couples, this amount doubles—meaning you and your spouse can each gift $18,000 to the same individual, totaling $36,000 per recipient. This limit applies whether you give one large gift or a series of smaller gifts throughout the year.
Incorporating the Lifetime Gift Tax Exemption in Your Estate Plan
Gifting can play a significant role in your estate planning strategy. The IRS allows individuals to gift up to $13.61 million over their lifetime (as of 2024), without incurring taxes. Gifts that exceed the annual exclusion limit are deducted from your lifetime exemption. If you make gifts over the annual limit, the excess is subtracted from your lifetime exemption, and no taxes are due at the time of the gift, though you will need to file a federal gift tax return.
What Happens in 2026?
It’s important to consider that the current high lifetime exemption of $13.61 million may not last. If Congress takes no action before the end of 2025, the exemption will revert to its pre-2018 level, which was $5 million (adjusted for inflation). However, gifts made between 2018 and 2025 under the higher exemption limits will not be negatively impacted by this reduction.
Maximize Your Gifting Potential
One key advantage of gifting is that you can make gifts to an unlimited number of people each year using the annual exclusion. There’s no aggregate limit for the donor, meaning whether you gift to family members, friends, or others, the $18,000 tax-free limit per recipient still applies.
Make Your Giving Go Further
Explore how strategic gifting can benefit both you and those you care about. Talk with WealthFactor today to create a plan that maximizes impact, minimizes taxes, and aligns with your financial goals.
