The federal gift tax applies to transfers of property (cash, securities, real estate, etc.) from one individual to another without receiving fair market value in return. The donor (giver) is responsible for paying the gift tax.
Annual exclusion (2025): $19,000 per recipient per year. A donor can give up to $19,000 to any number of recipients annually without using any lifetime exemption.
Gift splitting: Married couples can combine their exclusions to give $38,000 to each recipient per year, even if only one spouse made the gift (requires filing Form 709).
Lifetime exemption: The gift tax lifetime exemption is unified with the estate tax exemption — $13.99 million (2025). Taxable gifts (above the annual exclusion) reduce the estate tax exemption dollar for dollar.
Gift tax rate: Same as estate tax — up to 40% on transfers above the lifetime exemption.
Gifts not subject to gift tax: - Gifts within the annual exclusion. - Gifts to a U.S. citizen spouse (unlimited marital deduction). - Gifts to qualified charities. - Direct payments to educational institutions for tuition (any amount — not through a 529). - Direct payments to medical providers for health care (any amount).
Basis: The recipient of a taxable gift takes the donor's cost basis (carryover basis), plus a portion of any gift tax paid.
> Exam tip: The annual exclusion ($19,000 for 2025) is a key number for CFP® and EA exams. Direct tuition and medical payments are 100% excluded — don't need to go through a 529. Gifts to 529s use the 5-year gift election (superfunding).