Gift taxes on cash gifts are usually the responsibility of the giver, though most do not owe tax due to the lifetime exclusion. Givers can also give up to a set annual limit per person without triggering gift taxes or needing to report the gifts. Recipients do not pay income tax on gifts, but they may owe capital gains tax if they sell gifted property that has appreciated.
If you plan on gifting or receiving cash, a financial advisor can help structure those gifts to minimize tax liabilities and comply with gift tax rules.
What Is the Gift Tax and How Does It Work?
The gift tax is a federal tax applied to the transfer of money or property from one person to another without receiving something of equal value in return. It's designed to prevent individuals from bypassing estate taxes by giving away their wealth during their lifetime. The tax only applies to gifts that exceed specific exclusion limits, and in most cases, it's the responsibility of the person giving the gift, not the recipient.
Annual Exclusion
One key feature of the gift tax is the annual exclusion, which sets a cap on how much can be given to each individual without needing to report it to the IRS. For 2024, this limit is $18,000 per recipient ($19,000 in 2025).
Any amount given beyond that requires the filing of a gift tax return (Form 709), though this doesn't necessarily mean that the giver will owe taxes. The excess amount counts toward the giver's lifetime exemption limit.
Lifetime Exemption
The lifetime exemption is cumulative, meaning that the total value of gifts exceeding the annual exclusion is tracked over the giver's lifetime. Only when the total gifts surpass this threshold, which for 2024 is $13.61 million and $13.99 million in 2025, does the gift tax itself come into play.
Essentially, the gift tax exists as a mechanism to ensure that large wealth transfers are taxed either during one's lifetime or as part of an estate upon death, depending on how much of the lifetime exemption has been used.
Net Gifts
A net gift is one for which the recipient has agreed to pay the gift tax. The amount of the tax is subtracted from the gift, which reduces the amount of gift subject to the gift tax. The strategy can effectively reduce the overall tax due on the transaction, but it must be voluntarily agreed to by the recipient. Otherwise, the tax has to be paid by the giver.
What to Do After Receiving a Cash Gift
If you receive a cash gift, you don't need to worry about paying taxes on it. In the U.S., gifts are not considered income. And the gift tax, if any, applies to the person giving the gift, not the recipient. Whether you receive $1,000 or $50,000 or more, the responsibility for reporting and potentially paying taxes falls on the giver.
While you don't need to report the gift to the IRS or pay taxes on it, it's a good idea to keep a record of the transaction, especially for large sums. This can be useful if there's ever a need to clarify the nature of the transfer.
If the gift exceeds the annual exclusion, the giver may need to file a gift tax return, but this doesn't affect you as the recipient. In short, when you're on the receiving end of a cash gift, your role is simply to accept it, without any tax obligations on your part.
What to Do After Giving a Cash Gift?
If you give a cash gift, it's your responsibility to track the amounts given to each recipient and determine whether the gift exceeds the annual exclusion limit-$18,000 in 2024 and $19,000 in 2025.
Any amount over the annual exclusion must be reported to the IRS by filing a gift tax return (Form 709), but this doesn't mean taxes are immediately due. The excess amount is deducted from your lifetime exemption, which is $13.61 million in 2024 and $13.99 million in 2025.
Taxes are only owed if the total of gifts exceeding the annual exclusion surpasses this lifetime limit.
For example, in 2024, if an individual gives $25,000 to one recipient, $20,000 to another, and $30,000 to a third, they would need to report the amounts exceeding the $18,000 exclusion-$7,000, $2,000, and $12,000 respectively. For 2025, assuming that the same gifts were given, the amounts exceeding the $19,000 exclusion would be $6,000, $1,000, and $11,000.
These excess amounts would be deducted from the lifetime exemption, with no immediate taxes owed. Maintaining detailed records and working with a financial advisor or tax professional can help manage your gifting strategy while staying compliant with IRS rules.
Cash Gifts vs. Other Gifts
While receiving a cash gift is tax-free, it may be different with gifts of property or other financial assets, such as stocks or bonds. That's because when you receive property as a gift you inherit the giver's cost basis. If you later sell the property, your capital gains will be based on the original purchase price, not the value at the time you received the gift. If the asset has appreciated in value since it was originally acquired, this could result in a capital gains tax liability to the recipient.
Financial assets like stocks or bonds follow similar rules. If you sell the asset after it has gained value, you may owe capital gains tax on the difference between the original purchase price and the selling price. However, like cash gifts, these assets do not trigger any immediate tax obligations for the recipient at the time of the transfer. And, even when a recipient may owe capital gains taxes, the responsibility for any potential gift tax remains with the giver.
Bottom Line
The gift tax almost always falls on the person making the gift, except when the recipient volunteers to pay it. In any event, annual and lifetime exclusions prevent most gifts from triggering actual gift taxes. Recipients will also owe no income taxes on gifts, which are not considered income. While recipients of cash gifts rarely have immediate tax concerns, gifts of property or financial assets can come with future tax implications if sold later. Keeping detailed records and understanding the rules ensures a smooth gifting process for both parties involved.
Tax Planning Tips
- A financial advisor can help optimize your portfolio for taxes. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
- SmartAsset's tax return calculator with updated brackets and rates to see how your income, withholdings, deductions and credits will affect your next refund or balance due.
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