Do I have to pay taxes on gifts I make to family or friends?
We’re often asked about the tax implications of giving gifts to family or friends. Below is a detailed explanation of how you can avoid paying Uncle Sam for these gifts.
The annual exclusion for gifts in 2025 is $19,000. This means you can give any individual $19,000 in the calendar year without having to worry about gift taxes. Spouses can combine their annual exclusions to double the size of the gift given to each person.
For example, if John and Jane are married with a child, they could give that child $38,000 in 2025 ($19,000 from each parent). If the child is married with two children, John and Jane could also give their child’s spouse $38,000...and give their two grandchildren $38,000 each. This allows John and Jane to give their immediate family $152,000 per year without any gift taxes.
Gifts that exceed the annual limit count against the lifetime exclusion, which is $13.99 million in 2025. So, if the above married couple gave their child $50,000; that amount exceeds the eligible $38,000 by $12,000. The couple would have to file a gift tax return to show this $12,000 is not taxable, since it is being counted against the $13.99 million lifetime exclusion. If your gift amount exceeds the annual limit, you must file a gift tax return. NOTE: This annual exclusion amount can change at any time. It is possible this figure could dip down to $1 million in future years like it has been in past years.
If you exceed the lifetime limits, you could wind up owing gift tax of up to 40%. Even if you don’t, your lifetime gifts would reduce how much you can pass tax-free through your estate plan.
There are many strategies you can apply to avoid gift taxes. Let’s use an example using a married couple with a child like John and Jane above. John and Jane want to give their married son a cash gift to be used for a down payment on a house. They could actually give $152,000 to their son (and his wife) in a two-day period; and they could do this without exceeding the annual exclusion. This is done by giving $38,000 to their son and $38,000 to his wife on December 31st. They could then give another $38,000 to each of them on January 1st. Remember, the annual limit is accounted for on a calendar basis. So a married couple could theoretically give $76,000 to any person in a two-day period.
NOTE: the gift tax rules are NOT exclusive to monetary gifts. The following also count as gifts for this purpose:
Updated 5/23/2025
The annual exclusion for gifts in 2025 is $19,000. This means you can give any individual $19,000 in the calendar year without having to worry about gift taxes. Spouses can combine their annual exclusions to double the size of the gift given to each person.
For example, if John and Jane are married with a child, they could give that child $38,000 in 2025 ($19,000 from each parent). If the child is married with two children, John and Jane could also give their child’s spouse $38,000...and give their two grandchildren $38,000 each. This allows John and Jane to give their immediate family $152,000 per year without any gift taxes.
Gifts that exceed the annual limit count against the lifetime exclusion, which is $13.99 million in 2025. So, if the above married couple gave their child $50,000; that amount exceeds the eligible $38,000 by $12,000. The couple would have to file a gift tax return to show this $12,000 is not taxable, since it is being counted against the $13.99 million lifetime exclusion. If your gift amount exceeds the annual limit, you must file a gift tax return. NOTE: This annual exclusion amount can change at any time. It is possible this figure could dip down to $1 million in future years like it has been in past years.
If you exceed the lifetime limits, you could wind up owing gift tax of up to 40%. Even if you don’t, your lifetime gifts would reduce how much you can pass tax-free through your estate plan.
There are many strategies you can apply to avoid gift taxes. Let’s use an example using a married couple with a child like John and Jane above. John and Jane want to give their married son a cash gift to be used for a down payment on a house. They could actually give $152,000 to their son (and his wife) in a two-day period; and they could do this without exceeding the annual exclusion. This is done by giving $38,000 to their son and $38,000 to his wife on December 31st. They could then give another $38,000 to each of them on January 1st. Remember, the annual limit is accounted for on a calendar basis. So a married couple could theoretically give $76,000 to any person in a two-day period.
NOTE: the gift tax rules are NOT exclusive to monetary gifts. The following also count as gifts for this purpose:
- Property (real estate, vehicles, stocks, bonds, collectibles, etc. given away for free or for less than market value)
- Forgiven Loans (if you loan someone money and later forgive the debt, it can be considered a gift)
- Payments to 3rd parties for someone else’s benefit (i.e. – paying your friend’s rent directly to their landlord)
- Interest-free or Below-market loans (the IRS may impute interest and treat it as a gift)
Updated 5/23/2025
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