Gift Tax
Gift tax is a federal tax on transferring assets to another person while alive, with an annual exclusion of $19,000 per recipient in 2025 ($38,000 for married couples splitting gifts). The lifetime exemption of $13.99 million is unified with the estate tax exemption.
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Exam Tip
2025 annual exclusion: $19,000/recipient. Lifetime exemption: $13.99M (unified with estate tax). DONOR pays tax. Direct tuition/medical payments are unlimited and excluded.
EA exam baseline: For the 2026–2027 SEE, use Tax Year 2025 and federal tax law through December 31, 2025. Later-year amounts below are explicitly labeled comparisons, not the default exam year. IRS SEE policy.
What is Gift Tax?
The federal gift tax applies to the transfer of property from one person to another while receiving nothing, or less than full value, in return. The tax is paid by the donor (giver), not the recipient. Most gifts do not actually trigger tax due to the annual exclusion and lifetime exemption.
2025 Gift Tax Exclusions and Exemptions
| Type | Amount | Description |
|---|---|---|
| Annual Exclusion | $19,000 per recipient | Amount you can give to any person without using lifetime exemption |
| Married Couple (Gift Splitting) | $38,000 per recipient | Combined if both spouses consent |
| Lifetime Exemption | $13.99 million | Total gifts above annual exclusion before tax is owed |
| Gift to Non-Citizen Spouse | $195,000 | Higher annual exclusion for non-citizen spouses |
How the Annual Exclusion Works
| Scenario | Gifts Given | Uses Lifetime Exemption? |
|---|---|---|
| Give $15,000 to child | $15,000 | No (under $19,000) |
| Give $19,000 to child | $19,000 | No (exactly $19,000) |
| Give $25,000 to child | $25,000 | Yes - $6,000 counts against lifetime exemption |
| Give $19,000 each to 10 people | $195,000 | No (each gift under exclusion) |
Gifts That Don't Count
| Type | Requirement |
|---|---|
| Tuition Payments | Paid directly to educational institution |
| Medical Expenses | Paid directly to healthcare provider |
| Gifts to Spouse | Unlimited marital deduction (if U.S. citizen) |
| Charitable Gifts | Gifts to qualified charities |
| Political Contributions | Gifts to political organizations |
Gift Tax vs. Estate Tax
| Feature | Gift Tax | Estate Tax |
|---|---|---|
| When Applied | During lifetime | At death |
| Annual Exclusion | $19,000 per recipient (2025) | N/A |
| Lifetime Exemption | $13.99 million (unified) | $13.99 million (unified) |
| Tax Rate | Up to 40% | Up to 40% |
| Who Pays | Donor (giver) | Estate |
Key Point: The gift and estate tax exemptions are UNIFIED - gifts using lifetime exemption reduce your available estate tax exemption.
Gift Tax Filing Requirements
| Situation | Form Required |
|---|---|
| Gift exceeds annual exclusion | IRS Form 709 (due April 15) |
| Gift splitting with spouse | Form 709 (both spouses) |
| Gift under annual exclusion | No filing required |
| Direct tuition/medical payments | No filing required |
Strategic Gift Planning
| Strategy | Description |
|---|---|
| Annual Exclusion Gifts | Give $19,000/year to multiple people tax-free |
| 529 Plan Superfunding | Front-load 5 years of gifts ($95,000) at once |
| Direct Tuition/Medical | Pay unlimited amounts directly to institutions |
| Gift Appreciated Assets | Recipient gets your cost basis (carryover basis) |
| Effective-date distinction | OBBBA preserves the $13.99 million 2025 exclusion; $15 million begins in 2026 |
Lifetime Exemption Example
Assume two separate gifts in 2025 to different recipients, no prior taxable gifts, and no deceased-spousal unused exclusion. The remaining amount is measured using the 2025 exclusion; an estate in a later year uses that year’s exclusion.
| Year | Gift Amount | Annual Exclusion | Uses Exemption | Remaining Exemption |
|---|---|---|---|---|
| 2025 | $100,000 | $19,000 | $81,000 | $13,909,000 |
| 2025 | $500,000 | $19,000 | $481,000 | $13,428,000 |
| At death | - | - | Estate can use $13,428,000 | - |
Exam Alert
Key points for financial planning exams:
- 2025 annual exclusion: $19,000 per recipient ($38,000 married splitting)
- Lifetime exemption: $13.99 million (UNIFIED with estate tax)
- Donor pays the tax, not the recipient
- Direct tuition/medical payments are UNLIMITED and don't count
- Gift splitting: Married couples can combine exclusions (must file Form 709)
- Carryover basis: Recipient takes donor's cost basis for appreciated assets
- Form 709 required for gifts exceeding annual exclusion
2025 EA Exam Notes
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Estate Tax (Federal)
The federal estate tax is a tax on the transfer of property at death, applying to estates exceeding the exemption amount ($13.99M in 2025, $15M in 2026) at rates up to 40%.
Beneficiary
A beneficiary is a person or entity designated to receive the death benefit or proceeds from an insurance policy or retirement account.
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