Personal Finance - Financial Planner - IRS Gift Tax Rules and Tax-Efficient Gifts

Sep 19, 2026

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Personal finance guidance explains IRS rules for tax-efficient gifts to the next generation, emphasizing how the federal gift tax functions as a transfer tax separate from income tax. It covers when a gift tax return (Form 709) is required, including thresholds like the 2022 annual exclusion, spousal splitting, and non-cash valuation methods for stocks and mutual funds. The document also explains due dates, situations involving future interests or below-market transfers, and why filing often does not mean gift tax is ultimately owed.

LanguageEnglish

CategoryLetters

FormatPDF

Pages2

Reading Time1 min

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The federal gift tax and filing triggers

Annual exclusion limits and gift splitting

Non-cash gifts and valuation methods

When to file Form 709 and when it is due

PERSONAL FINANCE | Financial Planner The IRS Has Rules on How Much Money You Can Freely Share With Others How to Make Tax-Efficient Gifts by Alexandra Armstrong, CFP, CRPC, and Christopher Rivers, CFP, CRPC If you’re comfortably retired and/or in a good financial position, it can be extremely rewarding to make a gift to the next generation to help them get started in their adult life or begin passing down a legacy. However as with most financial actions, there are tax rules to consider. When talking to clients we find that the federal gift tax is one of the most misunderstood pieces of our tax structure. The federal gift tax applies to transfers of property where the donor does not receive value in return. Like the estate tax, this is a transfer tax and is completely independent of income tax. If gifts are made above certain monetary limits, you’re required to file a gift tax return (Internal Revenue Service Form 709) along with your income tax return. Wait—If I Give Away Something I May Have to Pay a Tax? In some instances, a gift is subject to gift tax. The donor—the person giving the gift — is responsible for filing a gift tax return and paying a gift tax if necessary. Gifts you receive are not considered income, so there’s no income tax due. In 2022, the annual gift tax exclusion is $16,000 per recipient. Total gifts up to this amount are tax-free to the recipient. The limit applies per person, so a married couple can give $32,000 to their daughter with no gift tax implications. For example, if a mother and father write separate checks to their daughter for $11,000 each, no gift tax return would be necessary and no gift tax due. If Mom writes one check (or makes one gift of stock) for $22,000, there will still be no gift tax due, but they will be required to file a gift tax return to indicate that they have made a gift that should be considered split between the two of them, thus staying below the annual $32,000 exclusion. If the daughter is married, a total of up to $64,000 could be given tax-free, with $16,000 each going to both the daughter and her spouse from both mom and dad. Be Careful When Making Non-Cash Gifts When gifting an asset other than cash, the value of the gift for tax purposes is the value on the date of transfer. The most common version of this is a gift of shares of a stock or mutual fund. For common stocks and exchangetraded funds, the value of gift is the average between the high and low prices on the date the transfer is made. Mutual funds are valued at the closing price on the day of the transfer. Typically, gifts of shares of stock are made by specifying the number of shares. For example, if you intend to gift $16,000 of stock XYZ, and the share price is $100, you would consider gifting 160 shares. However, if on the day the gift goes through the share price opens the day at $100 per share but increases 5% to $105 per share during the day, you will be over the annual gift limit. The average price for the day will be $102.50 and your gift exceeds the annual exclusion. When Must I File a Gift Tax Return? Generally, a gift tax return is required in each of the following instances: n The total value of all gifts made to the same person within the 2022 calendar year exceeds $16,000 . (Note that this annual gift tax exclusion may increase in the future with inflation.) n Your spouse gives property to the same person that exceeds $16,000 in value in the 2022 calendar year. Although your spouse is the only one who made the gifts, you and your spouse may elect to say the gifts came from both spouses, as noted in the example above. n The total value of gifts made from a spouse who is a U.S. citizen to a spouse who is not a U.S. citizen exceeds $164,000 in 2022. Gifts made to a spouse who is not a U.S. citizen are limited to a specific dollar amount, indexed for inflation each year. Note that gifts between two U.S. married citizens are unlimited. n You make a gift

FAQs

What is the federal gift tax and how is it different from income tax?

The federal gift tax applies when a donor transfers property without receiving value in return and is independent of income tax. It is a transfer tax like the estate tax.

When is an annual gift tax exclusion relevant for 2022?

In 2022, the annual gift tax exclusion is $16,000 per recipient, and gifts up to that amount are tax-free to the recipient. The limit is applied per person, so couples may use gift splitting.

How is the value of a non-cash gift determined for gift tax purposes?

For non-cash assets, tax value is based on the date of transfer. Common stocks and ETFs use the average of the high and low on that date, while mutual funds use the closing price on the transfer day.

Sep 19, 2026

Upload by Kyle