892 / What is the federal gift tax?
The federal gift tax is an excise tax on the right to transfer property during life.1 The donor is generally responsible for paying the gift tax. The payment of the gift tax by the donor is not treated as a gift. The gift tax is a cumulative tax and the tax rates are progressive. Gifts made in prior years are taken into account in computing the tax on gifts made in the current year with the result that later gifts are usually taxed in a higher bracket than earlier gifts (a drop in tax rates could obviate this result). Moreover, the tax is a unified tax; the same tax that is imposed on taxable gifts is imposed on taxable estates. The maximum gift tax rate for 2011 and 2012 was 35 percent. Under the American Taxpayer Relief Act of 2013, the top estate and gift tax rate increased to 40 percent, and the exclusion amount was set at the $5 million level, as indexed for inflation annually to $5.49 million in 2017. The 2017 TCJA raised the exemption amount to $11.18 million in 2018, $11.4 million in 2019, $11.58 million in 2020, $11.7 million for 2021, $12.06 million for 2022, $12.92 million for 2023, $13.61 million in 2024 and $13.99 million in 2025.2 The base amount was increased to $15 million under the 2025 OBBB for tax years beginning in 2026 (to be further indexed for inflation in future years).
A gift tax return (Form 709), if required, must generally be filed by April 15 of the year following the year in which the gift was made. A six-month extension for filing is available. Tax is generally due by April 15, but certain extensions for payment may be available. See Q 915.
The Federal Gift Tax Worksheet, below, shows the steps for calculating the gift tax. Calculation starts with determining what constitutes a gift for gift tax purposes (see Q 893). In general, gifts include gratuitous transfers of all kinds. Two spouses can elect to have all gifts made by either spouse during the year treated as made one-half by each spouse ( Q 904). A qualified disclaimer is not treated as a gift ( Q 895).
Gifts are generally valued at fair market value on the date of the gift ( Q 916). Special rules apply for a wide variety of investments and to net gifts ( Q 900), and Chapter 14 special valuation rules apply to transfers to family members of certain interests in corporations, partnerships, or trusts ( Q 934).
Several exclusions are available. A $19,000 in 2025-2026 ($18,000 in 2024, $17,000 in 2023 $16,000 in 2022, and $15,000 in 2018-20213) annual exclusion is available for present interest gifts on a per donor/donee basis. An unlimited exclusion is available for qualified transfers for educational and medical purposes. See Q 905.
Several deductions are also available. Unlimited marital ( Q 912) and charitable ( Q 913) deductions are available for certain transfers to the donor's spouse and to charities.
The amount of taxable gifts subject to the federal gift tax equals gifts made during the year reduced by all exclusions and deductions.
The federal gift tax is imposed on taxable gifts. As discussed above, the federal gift tax rates are generally progressive and the tax is based on cumulative taxable transfers during lifetime. To implement this, the tax is calculated on total taxable gifts, the sum of the taxable gifts made during the year (current taxable gifts) and prior taxable gifts, and the gift tax that would have been payable on prior taxable gifts (using the current tax rates) is then subtracted out. 2010 TRA provided that the amount of the unified credit is computed taking into account the credit for prior years' gifts using the gift tax rate for the current gift to determine the tentative tax.4 Thus, a donor can make gifts equal to the applicable exemption amount (see above) and prior taxable gifts without incurring a gift tax liability.
Planning Point: A gift made after August 5, 1997 cannot be revalued if the gift was adequately disclosed on a gift tax return and the gift tax statute of limitations (generally, three years from the date of filing) has passed.5 Consider filing gift tax returns even for non-cash annual exclusion gifts.
The tentative tax is then reduced by the unified credit ( Q 914) to produce gift tax
payable.
| Federal Gift Tax Worksheet | ||
| Current Year | ||
| Current Gifts | Q 893 | |
| – Annual Exclusions | Q 905 | |
| – Qualified Transfers Exclusion | Q 905 | |
| – Marital Deduction | Q 912 | |
| – Charitable Deduction | Q 913 | |
| – Total Reductions | ||
| Current Taxable Gifts | ||
| + Prior Taxable Gifts | ||
| Total Taxable Gifts | ||
| Tax on Total Taxable Gifts | Appendix D | |
| – Tax on Prior Taxable Gifts | Appendix D | |
| Tentative Tax | Appendix D | |
| – Unified Credit | Q 914 | |
| Federal Gift Tax | ||
1. IRC § 2501.
2. American Taxpayer Relief Act of 2012, Pub. Law No. 112-240, § 101; Rev. Proc. 2016-55, The 2017 Tax Act, Pub. Law. No. 115-97, Rev. Proc. 2018-18, Rev. Proc. 2018-57, Rev. Proc. 2019-44, Rev. Proc. 2020-45, Rev. Proc. 2021-45, Rev. Proc. 2022-38, Rev. Proc. 2023-34, Rev. Proc. 2024-40.
3. Rev. Proc. 2016-55, Rev. Proc. 2018-57, Rev Proc. 2019-44, Rev. Proc. 2020-45, Rev. Proc. 2021-45, Rev. Proc. 2022-38, Rev. Proc. 2023-34, Rev. Proc. 2024-40.
4. IRC Section 2505(a).
5. IRC § 6501(c)(9).