What you should know about gifting money to children
Key takeaways
2025 gift tax exclusion allows up to $19,000 per person, per year.
Lifetime IRS gift tax exemption is $13.61 million per individual.
Gifting can reduce estate and inheritance taxes.
You’ve spent your whole life saving so that you can create a better life for yourself and your family. Now, you’re in a position to give your loved one a major financial gift. You realize these funds could help them buy a home, pay off loans, and begin to build their own wealth.
Gifting money to children can bring valuable tax benefits that enhance your financial situation. However, you don’t want to be penalized for your generosity during tax season.
What is the best way to gift money to adult children while reaping tax benefits and avoiding financial consequences?
In this guide, you’ll learn how much money you can gift tax-free to ease the burden on your loved one. Continue reading to learn how to give a life-changing gift in a thoughtful and financially responsible manner.
How much money can you gift tax-free?
Each year, the IRS designates a “gift limit” or gift tax exclusion. This is the maximum amount you can gift to another person without liability in a one-year period. The amount changes annually based on many factors, including the rate of inflation.¹
In 2024, you can legally gift up to $18,000 without owing a gift tax.²
However, the gift tax exclusion is per person, per year. That means that each member of a married couple can gift the same child or grandchild $18,000 in a calendar year. That increases the limit to $36,000 total.
In 2025, the legal gift limit without owing taxes increases to $19,000 per person, per year.
Furthermore, any individual can give as many tax-free gifts at that year’s maximum as they would like. However, each gift must go to different recipients.
In other words, in 2024 you can give your three adult children $18,000 each without incurring a tax penalty. Your spouse could also give each child $18,000 without incurring a tax penalty. Penalties only apply if an individual gifter exceeds the annual limit.
Children do not pay tax on gift money from their parents. Gifts at or below the limit are not considered taxable income.
Be aware that you can make payments directly to an adult child's college or university tuition or medical bills. Those direct payments generally do not count as gifts and do not impact the limit.
When gifting property, the IRS will deduct the property’s fair market value against the gift limit.
The lifetime IRS gift tax exemption
However, gifting above the limit does not automatically trigger the gift tax. This is due to the Lifetime IRS Gift Tax Exemption.³
For 2024 and 2025, an individual is entitled to gift up to $13.61 million over their lifetime (or as part of their estate). That amount grows to $27.22 million for married couples who file jointly.
If you exceed the gift limit, the difference will be subtracted from your Lifetime IRS Gift Tax Exemption. You will need to report the gift using IRS Form 709 to ensure the gift is tax-free.⁴
However, remember that the lifetime exemption also includes anything you hope to gift after your death, including property. In essence, only those with over $13.61 million in funds and assets are subject to the federal gift tax. However, those who do will owe gift tax based on the taxable amount exceeding the lifetime limit, up to 40%.
If the value of your estate exceeds the lifetime exemption, you may wish to gift through an irrevocable trust instead.
What are the tax implications of gifting money to a child?
The positive implications of gifting money to children
An estate tax is a tax on your right to transfer property at your death. You’ll be taxed on everything you own, including property and financial assets, at the time of your death. By gifting money or property while you’re alive, you can reduce your estate tax burden.
Likewise, if you wait and gift your money as an inheritance, inheritance taxes will apply. Your heirs will be responsible for paying those taxes. By gifting within the federal limits while you’re alive, you can reduce your children’s tax burden after your death.
The negative implications of gifting money to children
Be aware that giving gifts does not impact your federal income tax return. Gifts to family members are not deductible. Only gifts considered charitable contributions can be claimed.
Furthermore, if you gift a property to your children and they sell it, they will be responsible for capital gains tax.⁵ In other words, they’ll owe the difference between the price you paid for the property and the price it sold for. The longer you’ve owned the gifted property, the higher the capital gains tax might be.
Gifting money to children: making the best choice
Before making the generous choice to gift money to your children, ensure you are prepared for the future. You don’t want to become financially dependent on your children later in life.
Ensure the gifted funds are not coming from an emergency or retirement fund that you may need as you age. While your children can take out loans to fund major expenses, it can be more difficult to take out loans to fund retirement.⁶ Thus, it’s crucial to gift thoughtfully.
You may wish to work with a financial advisor, accountant, or tax professional to ensure that you gift wisely.
Master your taxes with Raisin
Have more questions about taxes and your personal finances? Head to our tax guides from Raisin to learn more!
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
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