Gifting money or other assets to family members can be a generous way to share wealth but U.S. federal tax rules for gifts are complex. Understanding how the rules apply to annual gifts, lifetime exemptions, and reporting requirements can help you transfer money or property without unintended tax consequences.
A gift includes transfers of cash or assets to another person, where you receive nothing in return. The person making the gift is generally responsible for any gift tax that may apply; not the recipient.
A gift tax is a federal tax imposed on individuals who transfer money or property to others without receiving full value in return. Because of the annual exclusion, many gifts fall under the IRS’s tax-free threshold, meaning most small to moderate financial gifts between family members have no tax consequences.
In 2025 and 2026, the IRS allows individuals to give up to $19,000 per recipient each year without needing to file a gift tax return. This is known as the annual gift tax exclusion, and it applies on a per-recipient basis. For example, you can gift $19,000 to your mother, $19,000 to your brother, and $19,000 to a friend in the same year without filing IRS Form 709. If you are married, you and your spouse can combine your exclusions and jointly give up to $38,000 per recipient annually without any reporting requirements.
However, if the value of a gift to a single individual exceeds the annual limit, the giver must file IRS Form 709 to report it. This doesn’t necessarily mean gift tax will be owed. The excess simply counts toward your lifetime gift and estate tax exemption, which is $13.99 million as of 2025 (subject to inflation adjustments in 2026). In most cases, the giver is responsible for any gift tax owed. However, arrangements can be made for the recipient to pay the tax instead, though this requires special consent and planning.
It’s important to remember that while gifts are not taxable, any future income generated from those assets—such as interest, dividends, or rent—is considered taxable and must be reported. For example, if you’re gifted stocks that pay dividends, you’ll owe tax on those dividends, even though the original gift was tax-free.
Also, keep in mind:
As with any tax matter, especially when large sums or complex assets are involved, it’s wise to consult a qualified tax advisor. The rules around gifting can be nuanced, and professional guidance can help you avoid mistakes and make the most of current IRS allowances.
The gift tax is a levy on significant gifts that prevents substantial wealth transfers from occurring without being taxed. It is not an income tax, but rather a transfer tax.
For example, a single individual who donates several $15,000-or-less gifts to separate recipients for a year will not be subject to the tax on gifts to family and will not be required to submit a gift tax return. Furthermore, because the number of persons who can contribute more than this amount is restricted, only a small percentage of people must decide whether they need to submit a gift tax return.
However, it is crucial to learn what constitutes a gift. If you sell a residence for much less than the IRS considers its "fair market value," the difference is deemed a gift.
Lifetime gifts also apply to your estate tax exemption. This means that any gifts exceeding the annual exclusion amount may reduce the tax-free amount you can transfer through your estate in the future. Currently, the IRS permits you to donate up to $13.99 million without paying gift tax during your lifetime, so most taxpayers will never have to pay gift tax.
So, let's assume you give your child $65,000 in 2025. This donation exceeds the yearly gift exclusion by $50,000. That implies you'll have to file a tax return with the IRS. Gifts to children and friends won’t be taxed right away. The IRS instead deducts $50,000 from your lifetime gift tax exemption. If you're unsure whether your gift to a family member is tax-free, consulting IRS guidelines or seeking expert advice from a financial advisor can clarify your obligations.
Gifting money to children can be a meaningful way to support them through important life moments, from education to starting their careers to building long-term financial stability. Before you move forward, it helps to understand how different approaches to gifting money to family members work and how they may affect your financial goals. By taking a thoughtful approach, you can provide meaningful support while protecting your own long-term well-being.
Parents can give their adult children money in a variety of ways:
When considering making a gift to a family member, tax considerations need to be made. A detailed look at your current financial situation is often the best place to start when deciding whether and how to go about giving money to children.
An increasingly common trend of parents helping their adult offspring has evolved in our society. It might involve paying for mobile phone bills, higher education expenditures, first-time home down payments, and wedding expenses. Gifting money to family is a generous way to support them during significant life milestones. However, full consideration should be given to how such gifts might affect the parents’ financial security. While giving money to family is customary, it might jeopardize your retirement plans, especially if an unforeseen emergency or medical expenses arise.
If you give more than the annual exclusion amount ($19,000 in 2025) to any one person in a year, you must file a federal gift tax return (Form 709) even if no gift tax is due.
Filing is simply a reporting mechanism: the excess reduces your remaining lifetime exemption. You pay tax only if your lifetime gifts exceed your lifetime exemption.
Certain types of transfers are not treated as taxable gifts or have special rules:
Lifetime gifting can reduce the size of your taxable estate, potentially lowering estate taxes for your heirs. By using annual exclusion and lifetime exemption strategically, you can transfer substantial wealth tax-efficiently.
Gifting assets while they are less valuable may allow recipients to benefit from future growth without increasing your taxable estate.
For large estates or business owners, early gifting, especially before potential future law changes may help lock in favorable exemption thresholds.
If you still have questions about gifting money to family members, you should speak with a tax professional.
Since 1946, Porte Brown has offered tax and accounting services to Chicago and the surrounding areas, specializing in everything from standard tax solutions to functional expense and budget advice to multi-state nexus concerns.
Contact us today to learn how to protect your assets and your family’s future.
Get in touch today and find out how we can help you meet your objectives.
