2020-2021 Gift Tax Rates: I’m Generous, but Do I Have to Pay This?

Two things keep the IRS out of most people's hair: the annual gift tax exclusion and the lifetime exclusion.
Tina OremAug 3, 2021
gift tax

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There are a lot of things to worry about in life, but the gift tax probably isn’t one of them.

Gift tax is a federal tax on transfers of money or property to other people while getting nothing (or less than full value) in return. Few people owe gift tax; the IRS generally isn’t involved unless a gift exceeds $15,000. Even then, it might only trigger extra paperwork.

In most cases, no. Assets you receive as a gift or inheritance typically aren’t taxable income at the federal level. However, if the assets later produce income (perhaps they earn interest or dividends, or you collect rent), that income is likely taxable.  has the details. Also, some states have .

Two things keep the IRS’ hands out of most people's candy dish: the $15,000 annual exclusion in 2020 and 2021, and the $11.7 million lifetime exclusion in 2021 (up from $11.58 million in 2020).

Stay below those and you can be generous under the radar. Go above, and you'll have to fill out a gift tax form when filing returns — but you still might avoid having to pay any gift tax.

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If you’re lucky enough and generous enough to use up your exclusions, you may indeed have to pay the gift tax. The rates range from 18% to 40%, and the giver generally pays the tax. There are, of course, exceptions and special rules for calculating the tax, so see the for all the details.

Caring is sharing, but some situations often inadvertently trigger the need to file a gift tax return, pros say.

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Lending money to friends and family is usually , and the IRS can make it even worse. It considers interest-free loans as gifts. Or if you lend them money and later decide they don't need to repay you, that's also a gift.

“Let’s say you live by Grandma, so for convenience, we're going to put you on Grandma's bank account. Guess what just happened?” Picciurro says. “If you're put as a joint [owner] on a bank account with somebody and you have the right to take the money out at any time, essentially Grandma is giving you a gift.”

» Need more guidance? See our full roundup of the .

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