If you are unfamiliar with various tax planning aspects of gifting money or property and are concerned that receiving or making a gift will produce a taxable event, this article will help you. We will clarify key information for giving or receiving money, when to get advice from your tax professional, and the option of donor-advised funds (DAFs), which are excellent vehicles for charitable giving.
Under current tax law, a gift to a recipient (donee) is typically not taxable and is not reported as income. Gifts from donors can be excluded from tax by not exceeding the annual gift tax exclusion (see below) or exempted from gift tax by using the lifetime gift and estate tax exemption.
Year-end is near, and now is the time to plan for intended gifts. Please consult with your tax professional about Form 709 for any gift that exceeds the annual exclusion amount, and consult with your financial advisor about the effect of intended gifts on your financial situation before making the gifts. Hear from Ann Timoney, CFP®️, as she explains the donor rules and requirements further in this video:
THE ANNUAL GIFT TAX EXCLUSION
IRS rules allow a donor to give up to $19,000 to an individual (donee or recipient) in 2025, with no gift tax. This is the annual gift tax exclusion, which will remain at $19,000 in 2026. Here’s what to consider:
- Exclusion for Individuals: A donor can gift $19,000 in December 2025 and $19,000 in January 2026 to the same donee ($38,000 total), as gifts fall into two calendar years.
- Exclusion for Married Couples: Married donors can each give $19,000 to a donee in 2025, and each can give $19,000 to the same donee in January 2026, for a grand total of $76,000, with no gift tax. Married donors must file Form 709 to elect gift splitting so the IRS knows they have not exceeded the annual limit per donor. This is because total gifts from the same household exceed $19,000.
- Larger Gifts: If a donor’s gift exceeds $19,000 in 2025, the donor must file Form 709 to report the amount that exceeded $19,000 and either pay gift tax on it or elect to deduct the overage from their lifetime gift and estate tax exemption (see next section). Larger gifts are common, for example, when parents help adult children with down payments on homes. The donor, not the recipient, typically pays the gift tax.
- 529 College Savings Plans: Donors can gift up to five years’ worth of the annual exclusion at one time into a 529 Plan (5 x $19,000). This can allow for $95,000 to be gifted into a child’s 529 college savings plan, or $190,000 from married donors, in 2025, for example.
- No further exclusion amount gifts can be made to the child or the 529 plan by the same donor(s) until the five-year period has passed. Then the donor can repeat the five-year prefunding.
- 529 Plans are generally tax-advantaged, as earnings and account value growth are not taxed if funds are used for qualified education costs. Your tax professional can guide you.
LIFETIME GIFT AND ESTATE TAX EXEMPTION
The lifetime exemption limit is the amount a donor must reach and exceed before any gift taxes are due. This means you can gift significant amounts of property, cash, or stock to others without paying gift taxes. For households with higher net worth, gifting during your lifetime is an effective way to reduce potential estate taxes that may arise after your death. Here’s more about the exemption:
- Exemption for Individuals: Current IRS rules provide for a lifetime exemption on gift and estate tax of $13.99 million per person in 2025.
- Exemptions for Married Couples: A married couple has double this amount, or $27.98 million in 2025.
- New 2026 Rule: The exemption limit is scheduled to be increased to $15 million per individual or $30 million per married couple at the start of 2026, so planning is essential.
- Remember: There is no gift tax due on any gift exceeding $19,000 per donor, per recipient, per year until the lifetime exemption amount has been exceeded, provided Form 709 is correctly filed with the election that any gift exceeding the annual exclusion amount is to be deducted from the lifetime exemption.
We recommend consulting your tax professional to help you with this.
DONOR-ADVISED FUNDS – A GREAT TOOL FOR CHARITABLE GIVING
Donor-advised funds (DAFs) are charitable accounts commonly available at brokerage firms such as Charles Schwab or Fidelity Investments. They are very efficient for gifts of appreciated assets, such as stocks or mutual funds, to qualified charities. Here’s how they work:
- People with taxable investment accounts containing stocks or mutual funds that have appreciated can transfer those assets into a DAF.
- The donor chooses how much in assets is transferred to the DAF. The transfer is irrevocable and final.
- Upon deposit of appreciated assets to the DAF, the charitable contribution is completed, and the tax deduction can be taken.
- The assets are sold inside the DAF, and there is no capital gain tax.
- The account holder (you) can execute “grants” of desired amounts to eligible 501(c)(3) charities of your choice, on the schedule you choose, even if it is in the following calendar year or beyond.
If you are interested in establishing a DAF account in 2025, allow time to open and fund it. It is wise to have appreciated assets deposited no later than December 15, 2025, or even sooner. Each institution will have a funding deadline to ensure you can claim the charitable deduction for this year.
Consult with your tax professional, as there are IRS rules about standard deductions and income levels that can affect the donor’s actual tax charitable deduction. We are always glad to address your questions, so please don’t hesitate to contact us for assistance.
Transcript:
Ann Timoney (00:00- 01:41)
Have you ever been confused about gifts of money? Most people are. And I’m here to help you with that.
There are two basic categories of gifts. The first one is called the annual gift tax exclusion, which is $19,000 in 2025. So an individual donor can give up to $19,000 to anyone they choose in this calendar year and not be liable for any gift tax. So that’s good. And it’s tax-free to the recipient as well. Married couples can give double that amount, or $38,000, to an individual recipient and avoid any gift tax.
There’s another category for larger gifts, which falls under what’s called the lifetime gift and estate tax exemption. And that is $13,990,000 in 2025. What that means to a donor is you can give significant amounts of money up to that limit during your lifetime and not pay a gift tax, provided that you file a wonderful form called Form 709, where you’re electing to have your larger gift amount subtracted from your lifetime exemption. Therefore, you would not be liable for gift taxes.
If your eyes are crossing, there’s an article about gifts on our website at opeswealth.com that I’ve written to help people out.
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