A woman and her husband celebrate after receiving a large financial gift from her parents.
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Maybe your daughter recently got married and you want to help her and her husband start a new life. Or maybe they suddenly need financial help and turn to you for help.
Fortunately, the IRS allows you to give away a certain amount of assets—from real estate and stocks to cash—tax-free each year. In 2024 you can give away up to €18,000 per person and you do not have to pay tax on the transfer. In fact, you’ll only trigger taxes in 2024 if you’ve given away more than $13.61 million over your lifetime, not counting that annual exclusion. These boundaries will change in 2025.
Understanding the ins and outs of strategic giving can be important, especially for the wealthy. Talk to a financial advisor today.
A donation is any unilateral transfer of money or property. This means giving someone assets without getting any real value or any value in return. The term “fair value” applies when you give someone an asset in exchange for a payment that is significantly less than the market price. It applies to any kind of transaction, so giving someone real estate, a low interest loan, or access to an income stream would all apply. The classic gift is to simply give someone cash and get nothing in return.
There are several exceptions to what the IRS considers a taxable gift. For example, money given to a dependent does not constitute a gift, nor does paying someone’s tuition. However, outside the defined exceptions, any unilateral transfer or transfer below market price is considered a gift.
When you make a large enough donation to someone, it becomes taxable. The IRS taxes applicable gifts between 18% and 40%, depending on the size of the transfer. You pay this tax as a donor. Because of the exemptions from the gift tax, it usually only applies to the very wealthy. But if you need extra help navigating and planning for gift taxes, consider working with a financial advisor.
The federal gift tax ranges from 18% to 40%, but only applies to people who give away $12.92 million (2023) or $13.61 million over their lifetime.
Broadly speaking, the purpose of the gift tax is to prevent people from avoiding estate taxes by simply giving away all their money before they die. As a result, gift tax only applies to transfers that exceed two reasonably high ceilings.
The first limit is called the annual exclusion. This is the amount of money you can give away each year without incurring taxes. The annual exclusion is on a per-recipient basis, meaning it applies separately to each person you give a gift to, and there is no limit to the number of people you can give gifts to under this exemption. In 2024, the annual exclusion limit was $18,000 for individuals and $36,000 for married couples. In 2025 this will increase to $19,000 and $38,000 respectively.
The second limit is called the lifetime exemption. This is the amount of money you can give away throughout your life (and after your death) without incurring gift or inheritance taxes. The lifetime exemption is determined per donor, which means that all your donations/inheritance apply jointly. It also increases every year, so even if you’ve already met the lifetime exemption, you can give away a little more each year without being charged taxes. In 2024, the lifetime exemption was set at $13.61 million for individuals, allowing married couples to give away up to $25.84 million. In 2025, the lifetime exemption was increased to $13.99 million for individuals and $27.98 million for married couples.
Giving a gift together, as a married couple, is called “gift splitting.” This allows you to use the double exemption rates, but both spouses must agree to the donation and report it on their tax returns. Either way, when you give someone a gift worth more than the annual exclusion, you’ll need to file Form 709 on your taxes the year after you make the transfer. For example, if you give someone $25,000 in 2024, you would file Form 709 in 2025 with your tax year 2024 forms.
Whether you want to make a small or large financial gift, discussing it with a financial advisor first may help you avoid unexpected tax bills.
A married couple receives a check from the woman’s parents.
So let’s see how the gift tax applies if you want to give money to your daughter and her husband:
Let’s say you’re single and want to give them a generous financial gift in 2024. You can give a total of €36,000 – €18,000 to your daughter and €18,000 to her husband – without having to pay tax on the gifts.
However, you can still give them more than the $18,000 exclusion limit. Any individual donation that exceeds this annual ceiling simply counts towards your lifetime exemption. So if you give them $60,000 in 2024, your gifts will be $24,000 above the annual exclusion. This would reduce your lifetime exemption from $13.61 million to $13.586 million.
In theory, you could give your daughter and her husband $36,000 in 2024 and transfer up to $13.61 million in additional assets without worrying about gift taxes. As a result, you could potentially give them up to $13.646 million in 2024 if your full exemption was intact.
But don’t forget that the annual exemption is renewed every year. If you wish, you can put together a structured donation that will give your daughter and son-in-law the annual maximum each year for an indefinite period. You can also supplement your gift with each year’s lifetime exemption update.
However, if you need advice on how much you are eligible to donate, consider contacting a financial advisor through SmartAsset’s free matching tool.
The amount you can give to someone tax-free depends on how much you gave them last year and how much you gave in total during your lifetime. The IRS allows you to give $17,000 to as many recipients as you want in 2023, and $18,000 in 2024. Gifts that exceed the annual exclusion count toward your lifetime exemption limit, which increases from $12.92 million in 2023 to $13.61 million in 2024.
A financial advisor can help you manage your assets and organize them within your estate plan. Finding a financial advisor does not have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can have a free introductory meeting with your advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you are particularly wealthy, donating assets throughout your life is a tax-smart way to reduce the size of your estate and avoid federal estate taxes when you die.
Have an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But with a high-interest account, you can earn compound interest. Compare savings accounts from these banks.
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