The 2023 annual exclusion is $17,000 per person

In 2023, you can give up to $17,000 to each person without filing a gift tax return. This amount is called the annual exclusion. If you give more than $17,000 to one person in a single year, you must file Form 709 with the IRS, even if you do not owe tax.

The $17,000 limit applies to each recipient separately. You can give $17,000 to your child, $17,000 to your grandchild, $17,000 to a friend, and $17,000 to your spouse all in the same year without triggering a return requirement. Married couples can combine their exclusions, meaning you and your spouse together can give $34,000 to one person without filing.

This limit resets on January 1 each year. Gifts made on December 31, 2023 count toward the 2023 limit. Gifts made on January 1, 2024 count toward the 2024 limit, which is $18,000 per person.

Key Takeaways

  • The 2023 annual exclusion is $17,000 per recipient, and you must file Form 709 if you exceed this amount to any one person in a calendar year.
  • Married couples can combine their exclusions to give $34,000 per recipient without filing a return.
  • Gifts that exceed the annual exclusion count against your lifetime gift and estate tax exemption, which is $12.92 million in 2023.
  • Certain gifts do not count toward the limit: tuition paid directly to a school, medical expenses paid directly to a provider, gifts to your spouse, and gifts to political organizations.
  • The annual exclusion amount changes each year based on inflation and is rounded to the nearest $1,000.

What counts as a gift for tax purposes

A gift is any transfer of money or property where you receive nothing of equal value in return. This includes cash, real estate, vehicles, investments, artwork, and jewelry. It also includes forgiving a loan—if you lend someone $50,000 and later say they do not have to repay it, that forgiveness is treated as a gift of $50,000.

Gifts to your spouse who is a U.S. citizen are not limited by the annual exclusion. You can give your spouse any amount without filing a return or using any of your lifetime exemption. Gifts to political organizations and candidates are also unlimited and do not count toward the annual exclusion.

Payments made directly to a school for tuition do not count as gifts, even if you pay on behalf of someone else. The same applies to medical expenses paid directly to a healthcare provider. These payments must go straight to the institution—if you give the money to the student or patient to pay the bill themselves, it becomes a gift and counts toward the limit.

What happens if you exceed the $17,000 limit

If you give more than $17,000 to one person in 2023, you file Form 709 with your tax return. Filing the form does not mean you owe gift tax. Instead, the excess amount counts against your lifetime gift and estate tax exemption, which is $12.92 million in 2023.

Here is how it works: if you give $25,000 to your daughter in 2023, the first $17,000 is covered by the annual exclusion. The remaining $8,000 counts against your $12.92 million lifetime exemption. You file Form 709 to report this, but you owe no tax because you still have $12.91992 million of exemption remaining.

You only owe gift tax if your total gifts during your lifetime exceed your full lifetime exemption. For most people, this exemption is so large that they never reach it. However, if you make very large gifts over many years, you can use up your exemption. Once you do, any additional gifts are taxed at 40 percent.

How the annual exclusion changes year to year

The IRS adjusts the annual exclusion amount each January based on inflation. The adjustment is rounded to the nearest $1,000. In 2022, the limit was $16,000. In 2023, it rose to $17,000. In 2024, it will be $18,000.

These increases happen automatically—you do not need to do anything. The IRS announces the new limit in late October or early November of the prior year. If you are planning large gifts, check the IRS website in November to see what the next year's limit will be, since it may affect your timing.

Gifts to minors and trusts

Gifts to children under age 18 follow the same $17,000 annual exclusion as gifts to adults. However, the money must be structured carefully. If you give cash directly to a minor, they have legal control over it once they reach the age of majority (usually 18 or 21, depending on your state). Many parents and grandparents use a custodial account or a trust to hold the money and control when it is spent.

A Uniform Transfers to Minors Act (UTMA) account or Uniform Gifts to Minors Act (UGMA) account lets you give money to a minor while naming a custodian to manage it. Gifts to these accounts still count toward the $17,000 annual exclusion, but the custodian controls the funds until the child reaches adulthood.

If you set up a trust and give money to it, the gift may not may have access to for the annual exclusion unless the trust is structured to give the beneficiary certain rights—usually the right to withdraw the gift within a set time period. This is called a Crummey power. Without it, gifts to trusts count against your lifetime exemption immediately, even if they are small.

State gift taxes and other considerations

The federal gift tax is separate from state taxes. Most states do not have a gift tax, but a few do: Connecticut, Delaware, Louisiana, North Carolina, and Tennessee have estate taxes that can affect large gifts. If you live in one of these states, check your state's rules, because state limits may be lower than the federal limit.

Gifts do not affect your income tax return. You do not report gifts as income, and you cannot deduct gifts you give. The only filing requirement is Form 709 if you exceed the annual exclusion to any one person in a year.

If you are married and file jointly, you and your spouse can split gifts. This means a $34,000 gift from you can be treated as $17,000 from each of you, even if all the money came from one spouse's account. You must file Form 709 to elect gift splitting, but it does not create a tax liability—it just lets you use both exclusions.

Frequently Asked Questions

Do I owe gift tax if I give someone $20,000?

No. You file Form 709 to report the excess $3,000, but you owe no tax because it counts against your $12.92 million lifetime exemption. Most people never owe gift tax because their lifetime exemption is so large.

Can I give my child $17,000 every year without filing?

Yes. Each calendar year resets the annual exclusion. You can give $17,000 on December 31, 2023 and another $17,000 on January 1, 2024 without filing a return either year, because each gift falls within the limit for its respective year.

What if I give someone money and they pay me back later?

If you intended it as a loan from the start, it is not a gift. You should have a written loan agreement and charge interest at the IRS minimum rate. Without documentation, the IRS may treat it as a gift. If you forgive the loan later, the forgiveness is treated as a gift at that time.

Does my spouse's citizenship matter for gift tax?

Yes. Gifts to a spouse who is a U.S. citizen are unlimited. Gifts to a spouse who is not a U.S. citizen are limited to $175,000 per year in 2023. This limit also adjusts annually for inflation.

If I file Form 709, does that mean I am under audit?

No. Filing Form 709 is a routine reporting requirement when you exceed the annual exclusion. It does not trigger an audit or create any presumption of wrongdoing. The form simply tells the IRS how much of your lifetime exemption you have used.