What Is a Gift Tax?

» by Kristiana Daniels, Associate Advisor

How much do you lose on taxes every year? Read this guide to learn about what gift taxes are, when they apply, and how to minimize your gift tax payments.

What Are Gift Taxes?

A gift tax is a tax applied to the transfer of property from one individual to another. This tax only applies when a gift is delivered without receiving anything in return, or receiving something of a much lower value.

While it’s called a gift tax, this tax applies to every exchange with this dynamic.Things that you may not consider as formal “gifts” could be applicable. Taxable gifts that people don’t realize fall under gift tax law include:

Selling something at a significantly discounted price
Loaning someone money interest-free or at a low interest rate
Transfer of property like a vehicle, home, or land
Transfer of assets like stocks
529 plans for a college education for kids

When Do Gift Taxes Apply?

Financial planning for taxes can be confusing—gift taxes are no exception. Find out what constitutes a gift and what the two types of tax exclusions are for gifts below.

Annual Gift Tax Exclusions

There are two different limits that apply to gift taxes: annual exclusions and lifetime exclusions.

Wondering how much you can gift someone tax free? The annual gift tax exclusion was raised in 2022 to a new limit of $16,000, which means you can give up to $16,000 to multiple individuals, tax free. Keep in mind that this exclusion is per recipient. This means that you can give up to $16,000 to as many people as you want without the tax applying.

Spouses are treated differently in gift tax law. For one, gifts between spouses are unlimited and don’t trigger a tax return. You can buy your spouse as many gifts as your wallet can bear without worrying about tax.

Spouses also combine their gift exclusions and can give away $32,000 per recipient tax free. Just because you’re under the limit doesn’t mean that you’re free from filing a gift tax return. Substantial gifts still need to be filed on your taxes, even if you won’t have to pay taxes on it.

A final point that people get confused on is gifts to nonprofit organizations. These do not fall under gift tax law and are instead considered charitable donations. This means that you can give any amount of money, property, or other assets to nonprofits and it will be tax exempt. In general, businesses do not pay a gift tax.

Lifetime Gift Tax Exclusions

There is a separate lifetime gift tax exclusion of 11.7 million. This lifetime exemption takes effect when you exceed your annual limit. For example, gifting $100,000 will take away $84,000 from your lifetime limit after the annual exclusion is deducted. The lifetime limit is not calculated per recipient and is instead a running total of your gifts.

Dollar Amount Exceeded	Tax Rate
$0 – $10,000	18%
$10,001 – $20,000	20%
$20,002 – $40,000	22%
$40,001 – $60,000	24%
$60,001 – $80,000	26%
$80,001 – $100,000	28%
$100,001 – $150,000	30%
$150,001 – $250,000	32%
$250,001 – $500,000	34%
$500,001 – $750,000	37%
$750,001 – $1,000,000	39%
$1,000,000 +	40%

This bracketed system only applies the exceeded amount to its respective rate. For example, a gift of $45,000 would be taxed as follows:

The first $10,000 would be taxed at 18%
The next $10,000 would be taxed at 20%
The next $20,000 would be taxed at 22%
The final $5,000 would be taxed at 24%

A handy resource for finding out how much you’ll have to pay in taxes is this online calculator. This calculator can show you how much you’d owe on taxes. Try out different types of gifts you can imagine yourself giving!

Partner With a Financial Service Provider

If the thought of handling your taxes alone is intimidating, contact Summit Wealth Partners. Summit has been helping people manage their full financial picture for 40 years. Whether you need help with financial planning, wealth management, or business solutions, we can help you secure your financial future.