Key Takeaways
- Annual exclusion: $19,000 per donee (2025)
- Super annual exclusion for non-citizen spouse: $190,000 (2025)
- Lifetime exemption: $13.99 million (2025) unified with estate tax
- Gift splitting doubles annual exclusion for married couples
- Donor is responsible for paying gift tax, not the donee
Federal Gift Tax Overview
The federal gift tax is a transfer tax imposed on the gratuitous transfer of property during a person's lifetime. Understanding gift tax rules is essential for CFP candidates because gift planning is a cornerstone of comprehensive estate planning strategies.
2025 Gift Tax Exclusions and Exemptions
Annual Exclusion: $19,000 Per Donee
The annual gift tax exclusion for 2025 is $19,000 per donee. This means you can give up to $19,000 to any number of individuals each year without:
- Using any of your lifetime exemption
- Filing a gift tax return (Form 709)
- Paying any gift tax
Example: Sarah can give $19,000 each to her three children and five grandchildren (8 people) in 2025, totaling $152,000, without any gift tax consequences.
Super Annual Exclusion for Non-Citizen Spouse: $190,000
If your spouse is not a U.S. citizen, the unlimited marital deduction does not apply. Instead, you are limited to a special annual exclusion of $190,000 for 2025. This higher limit (compared to the standard $19,000) applies only to gifts that would otherwise qualify for the marital deduction if the spouse were a U.S. citizen.
Key Point: No gift tax return is required for gifts to a non-citizen spouse unless gifts exceed $190,000 for the year.
Lifetime Gift Tax Exemption: $13.99 Million (2025)
The lifetime gift tax exemption for 2025 is $13.99 million per individual. This exemption is unified with the estate tax exemption, meaning any portion used for lifetime gifts reduces the amount available to shelter your estate at death.
| Year | Annual Exclusion | Non-Citizen Spouse | Lifetime Exemption |
|---|---|---|---|
| 2024 | $18,000 | $185,000 | $13.61 million |
| 2025 | $19,000 | $190,000 | $13.99 million |
Unified Credit Calculation
The unified credit (also called the applicable credit amount) is the tax credit that eliminates gift and estate tax on transfers up to the exemption amount. For 2025:
- Basic credit amount: $5,541,800 (2025)
- This credit offsets the tax on the first $13.99 million of taxable transfers
The gift tax rate structure is progressive, with a top marginal rate of 40% on taxable gifts exceeding the exemption.
Gift Tax Rate Schedule (Simplified)
| Taxable Amount | Tax Rate |
|---|---|
| $0 - $10,000 | 18% |
| $10,001 - $20,000 | 20% |
| $20,001 - $40,000 | 22% |
| $40,001 - $60,000 | 24% |
| $60,001 - $80,000 | 26% |
| $80,001 - $100,000 | 28% |
| $100,001 - $150,000 | 30% |
| $150,001 - $250,000 | 32% |
| $250,001 - $500,000 | 34% |
| $500,001 - $750,000 | 37% |
| $750,001 - $1,000,000 | 39% |
| Over $1,000,000 | 40% |
Gift Splitting for Married Couples
Gift splitting allows a married couple to treat a gift made by one spouse as if each spouse made half of it. This effectively doubles the annual exclusion to $38,000 per donee for 2025.
Requirements for gift splitting:
- Both spouses must consent to split all gifts made during the year
- Both spouses must be U.S. citizens or residents
- Both spouses must file Form 709 (even the non-donor spouse)
- The couple must be married at the time of the gift
Example: Tom gives his nephew $38,000 in 2025. If Tom's wife Mary consents to split gifts, each spouse is treated as giving $19,000. No gift tax or lifetime exemption is used.
Unlimited Deductions
Unlimited Marital Deduction
Gifts between spouses who are both U.S. citizens qualify for an unlimited marital deduction. There is no limit on the amount that can be transferred tax-free between citizen spouses.
Important: This deduction is not available if the recipient spouse is not a U.S. citizen. In that case, use the $190,000 super annual exclusion.
Unlimited Charitable Deduction
Gifts to qualified charitable organizations receive an unlimited charitable deduction for gift tax purposes. There is no cap on the amount that can be given to charity without gift tax consequences.
Present Interest vs. Future Interest Gifts
For a gift to qualify for the annual exclusion, it must be a present interest gift.
| Present Interest | Future Interest |
|---|---|
| Donee has immediate right to use, possess, or enjoy the property | Donee's rights begin at some future date or upon some future event |
| Qualifies for annual exclusion | Does NOT qualify for annual exclusion |
| Example: Cash gift, outright property transfer | Example: Remainder interest in trust, gifts with conditions |
Crummey Powers: Converting Future Interests to Present Interests
Crummey powers (named after the 1968 court case Crummey v. Commissioner) allow gifts to irrevocable trusts to qualify for the annual exclusion by giving beneficiaries a temporary right to withdraw contributions.
Requirements for valid Crummey powers:
- Written notice must be given to beneficiaries when contributions are made
- Beneficiaries must have a reasonable time to withdraw (typically 30-60 days)
- The withdrawal right must be legally enforceable
- Beneficiaries should have an actual economic interest in the trust
- No prearranged agreement that the power will not be exercised
Practical Application: Crummey powers are essential for Irrevocable Life Insurance Trusts (ILITs), allowing premium payments to qualify for the annual exclusion.
Calculating Taxable Gifts
Formula for Taxable Gifts:
Total Gifts Made During Year
- Annual Exclusions ($19,000 per donee)
- Marital Deduction (unlimited for citizen spouse)
- Charitable Deduction (unlimited)
- Gift Splitting (if elected)
= Taxable Gifts for Current Year
Example Calculation:
John makes the following gifts in 2025:
- $50,000 to his son
- $100,000 to his wife (U.S. citizen)
- $25,000 to charity
- $19,000 to his daughter
| Item | Amount |
|---|---|
| Gift to son | $50,000 |
| Gift to wife | $100,000 |
| Gift to charity | $25,000 |
| Gift to daughter | $19,000 |
| Total Gifts | $194,000 |
| Less: Annual exclusion (son) | ($19,000) |
| Less: Marital deduction (wife) | ($100,000) |
| Less: Charitable deduction | ($25,000) |
| Less: Annual exclusion (daughter) | ($19,000) |
| Taxable Gifts | $31,000 |
John's taxable gift of $31,000 will reduce his lifetime exemption from $13.99 million to $13.959 million.
Gift Tax Liability: Donor vs. Donee
General Rule: The donor is legally responsible for paying any gift tax due.
Exception - Net Gifts: In a net gift arrangement, the donor and donee agree that the donee will pay any gift tax liability. This reduces the value of the gift for tax purposes.
Net Gift Formula:
Net Gift Value = Gross Gift / (1 + Gift Tax Rate)
Example: A donor in the 40% gift tax bracket wants to make a net gift of property worth $1,400,000. If the donee agrees to pay the gift tax:
Net Gift = $1,400,000 / 1.40 = $1,000,000
The donee pays $400,000 in gift tax, and the taxable gift is $1,000,000.
Form 709 Filing Requirements
When to File Form 709:
- Gifts to any one person exceed $19,000 for the year
- Any gift of a future interest (regardless of amount)
- Gifts to a non-citizen spouse exceeding $190,000
- Gift splitting is elected (both spouses must file)
- Any generation-skipping transfer
Filing Deadline: April 15 of the year following the gift (same as income tax return)
Extension: An income tax extension automatically extends Form 709
Important: Each spouse files a separate Form 709; joint returns are not allowed.
CFP Exam Tips
- Memorize 2025 limits: $19,000 annual exclusion, $190,000 non-citizen spouse, $13.99 million lifetime exemption
- Understand the unified system: Gift and estate tax exemptions are combined
- Know present vs. future interest distinction: Critical for Crummey power questions
- Remember donor pays: Gift tax is the donor's responsibility (unless net gift)
- Gift splitting requires consent: Both spouses must agree and file Form 709
In 2025, Marcus gives $50,000 to his daughter and $38,000 to his son. His wife Emily agrees to split gifts. What is Marcus's taxable gift amount?
Which of the following gifts does NOT qualify for the annual gift tax exclusion?
Robert, a U.S. citizen, wants to give $300,000 to his wife Maria, who is a citizen of Brazil (not a U.S. citizen). How much of this gift is subject to gift tax?