Table of Contents
Table of Contents

Key Takeaways
- In 2025, you can gift up to $19,000 per family member without triggering gift taxes or IRS reporting.
- Gifts over the annual limit reduce your lifetime gift and estate tax exemption, which is $13.99 million per person.
- Any gift above the annual limit must be reported to the IRS using Form 709, even if no tax is owed.
- Gifts of property or assets must be valued at fair market value at the time of the gift for accurate tax reporting.
- Direct payments to schools or medical providers typically bypass gift tax rules if paid directly to the institution.
Gifting money to family members is an admirable way to support those you care about, but understanding the rules on gifting money to family is important to avoid unintended tax consequences. While generosity feels good, missteps in managing gift taxes and IRS reporting can complicate your financial situation.
Understanding the legal rules and IRS regulations about financial gifts is essential. Not only does this knowledge help you avoid unnecessary tax complications, but it also ensures your generosity effectively supports your loved ones without negatively impacting your finances.
This content is for educational purposes only and is not intended as tax or legal advice. Please consult your attorney or tax advisor for guidance specific to your situation.
What Counts as a Financial Gift?
A financial gift is the transfer of money or property to another person without receiving something in return.
Financial gifts to family members often include:
- Cash Gifts: Directly giving money through cash, check, or electronic transfers.
- College Savings Gifts: Contributions to education-specific accounts like 529 plans or Coverdell ESAs.
- Custodial Account Gifts: Gifting funds into custodial accounts (UGMA/UTMA), managed for minors until adulthood.
- Property or Asset Gifts: Transferring valuable assets like stocks, real estate, or vehicles.
What is the Gift Tax Exclusion?
Annual Gift Tax Exclusion
The annual exclusion allows you to gift up to a certain amount of money to family members without triggering taxes. For 2025, the annual gift tax exclusion is $19,000 per donor, per recipient. Married couples can double this exclusion to $38,000 per recipient.1
Lifetime Gift Tax Exclusion
If your gifts go over the yearly limit, the extra amount comes out of your lifetime gift tax limit. In 2025, that limit is:
- $13.99 million for individuals
- $27.98 million for married couples2
How They Work Together
If you gift more than the annual exclusion amount to a single recipient in a year, the excess reduces your lifetime exemption.
For Example:
If you gift your child $30,000 in one year, the first $19,000 is tax-free, but the extra $11,000 reduces your lifetime exemption (currently $13.99 million), requiring you to report the gift on IRS Form 709. So you technically won't get taxed on the excess amount, unless you are over your lifetime limit.
How Do You Report Gift Tax on Your Tax Return?
Gifts above the annual exclusion must be reported using IRS Form 709, even if no tax is owed. Filing Form 709 helps track how much of your lifetime limit you’ve used.
Quick Facts on Form 709:
- Paper returns or electronic filing are acceptable.
- Due annually by April 15, aligned with federal income taxes.
- Important for documenting lifetime gift exemption usage.
Rules for Cash Gifts
Cash gifts can be in the form of checks, cash, or electronic transfers. They are subject to IRS gift tax exclusion rules, even when given to family members. Although the IRS doesn’t receive automatic reports from banks for personal gifts, it relies on self-reporting. Unreported gifts may come up during audits or estate reviews.
- Gifts under the limit don’t need to be reported, but keeping records can help with long-term planning.
- Even informal gifts count, so birthday or holiday money should be considered when tracking how much you've given each year.
- You must report gift amounts that are above the annual limit, even if you won't be taxed on it.
- You should consult your tax advisor regarding your individual situation.
Rules For Gifting Money to College Savings & Custodial Accounts
When gifting money to college savings plans and custodial accounts keep these key rules in mind:
College Savings Accounts (like 529 plans or Coverdell ESAs)
- Follow the $19,000 annual gift rule.
- Coverdell ESAs typically have a $2,000 yearly limit per child.3
- Money must be used for school expenses.
Custodial Accounts (UGMA/UTMA)
- Also follow the gift tax rules.
- The money can be used for many types of expenses, as long as it’s for the child.
- These custodial accounts can affect financial aid, but sometimes less than other accounts.
Rules for Property & Asset Gifts
When gifting non-cash assets such as estate property, stocks, or collectibles, determining the fair market value (FMV) is important for accurate tax reporting and estate planning. Fair market value (FMV) is the price an asset would sell for between a willing buyer and seller in an open market.
- Professional Appraisal May Be Required: For higher-value gifts, like real estate, valuable collectibles, or closely-held business interests, you may need a professional appraisal to establish accurate FMV. The IRS usually expects formal appraisals for substantial or complex gifts.
- Estate Tax Implications: Accurate FMV assessments directly affect your lifetime gift and estate tax exemption. If your valuation is too low, it could lead to additional taxes or penalties down the line.
- Impact on Recipient’s Taxes: FMV determines the recipient’s tax basis for calculating potential capital gains taxes when the gifted asset is eventually sold. Proper valuation is crucial for clarity and fairness.
For Example:
If you gift your child a piece of property, like a vacation home, a professional appraisal determines the Fair Market Value (FMV).
If the appraisal values the home at $500K, that's the amount you'll report to the IRS, and it becomes your child's tax basis.
If your child sells the home later on for $550K, the profit (capital gain) is $50K. You child may owe taxes on this $50K profit.
Payment of Tuition & Medical Expenses
Directly paying someone’s tuition or medical bills to the provider (such as a school or hospital) is a method of gifting money that typically bypasses gift tax limits. Key points include:
- No Annual Gift Limit: Payments made directly to qualifying educational institutions for tuition, or directly to medical providers for medical care, are generally exempt from annual gift tax exclusions and reporting requirements.
- Direct Payments Required: To qualify, payments must be made directly to the educational institution or healthcare provider, not to the recipient.
- Limitations: This exemption usually does not apply to expenses like books, room and board, or personal medical reimbursements.
Final Thoughts
Gifting money to family can be a generous gesture, but the tax rules aren’t always straightforward. If you’re planning to give more than just a small amount, it’s worth thinking about how it fits into your bigger financial picture. Understanding the rules can help you avoid surprises, and keeping track of what you give can make the process a lot smoother.
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Frequently Asked Questions
Do I have to report gifted money as income?
Who pays the gift tax, the giver or the receiver?
Is inherited cash taxable?
Sources
- Internal Revenue Service. "Gifts & Inheritances." https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances
- American Council of Aging. "Giving or Receiving Gifts and the Impact on Medicaid Eligibility: Understanding the IRS’ Gift Tax Exclusion." https://www.medicaidplanningassistance.org/gift-tax-exemption/
- Equity Trust. "2024 & 2025 IRA, HSA, CESA, and Solo 401(k) Plan Contribution Limits." https://www.trustetc.com/sdira-resources/contribution-limits/