LawMeaning

Gift Tax

Also known as: Gift exclusion

In one sentence

A federal tax on money or property given to another person during your lifetime.

Plain English

When you give someone a gift of significant value, the federal government may impose a tax on that transfer. The gift tax applies to gifts that exceed an annual exclusion amount (currently $17,000 per recipient in 2023, adjusted yearly for inflation). You're responsible for paying the tax, not the recipient. The IRS tracks large gifts and may reduce your lifetime estate tax exemption if you exceed the annual limit.

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Example

Sarah gives her daughter $25,000 for a down payment on a house. Since this exceeds the annual gift tax exclusion of $17,000, Sarah must file a gift tax return and the excess $8,000 counts against her lifetime exemption from estate taxes.

Used in a sentence

“The gift tax doesn't apply to presents under the annual exclusion amount, but larger gifts must be reported to the IRS.”

Related terms

Grantor
The person who creates a trust and transfers property into it.
Beneficiary
A person or organization entitled to receive money or property from a trust, will, or insurance policy.
Irrevocable Trust
A trust that cannot be changed, modified, or terminated once created without beneficiary consent.
Revocable Trust
A trust that the grantor can modify, amend, or terminate during their lifetime.
Probate
The court process of validating a will and distributing a deceased person's estate.
Intestate Succession
The legal process of distributing a deceased person's property when they leave no valid will.
Elective Share
A surviving spouse's right to claim a portion of the deceased spouse's estate despite the will.
Power of Attorney
A legal document authorizing someone to act on your behalf in financial or medical decisions.

This page is a plain-English reference and is not legal advice. Laws vary by jurisdiction and change over time. For specific situations consult a licensed attorney.