Gift Tax 101: Gift Tax Limits (+ Rules for Gifting Stocks)

Feeling generous and want to give a big gift? Just make sure you’re aware of the tax implications that accompany gifting in the U.S.

If you’re giving a gift, you should know that there’s a limit on how much you can give any one person without having to report it to the Internal Revenue Service (IRS). If you exceed this value, you will need to report the value of the gift to the IRS, and it will count against your annual exclusion and lifetime exemption

Here’s the scoop on the gift tax limit, including annual exclusion and lifetime exemption, so you’re prepared come tax season. Plus, we’ll cover how to report gifts for tax purposes and what happens to taxes when you gift stocks and crypto.

What the IRS considers a ‘gift’

According to IRS.gov, a gift is “any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.”

Are all gifts subject to the gift tax?

The IRS says to follow the rule of thumb that any gift is considered a taxable gift. However, there are exceptions.

Gifts below the annual gift exclusion limit for the calendar year do not qualify as taxable (more on the specifics of annual and lifetime exclusion amounts below!).

Additionally, gifts to your U.S.-based spouse or a political organization for its use are not taxable.

Finally, gifts to public charities are not subject to the gift tax. In fact, you can deduct the gift (considered a charitable donation) from your taxable income, up to half of your annual adjusted gross income for the year.

Public charities include organizations like churches, hospitals, certain organizations affiliated with hospitals, and educational institutions like schools and colleges. Be sure to get a tax receipt from the charity you donate to.

What can trigger a gift tax return

It’s important to consider the value of any gift you give, which the IRS defines as anything you give with monetary value in which you expect nothing in return. This includes large gifts to your kids, all-expenses-paid vacations to friends, and more. Generally, the gift giver pays taxes on the value of the asset.

There are ways to get around the gift tax. If a gift to an individual stays below the annual limit, you won’t be hit with a gift tax on it, and it won’t be deducted from your lifetime gift tax exemption amount.

Gift tax rates in 2022

Annual gift tax exclusion

The annual gift tax exclusion for 2022 is $16,000. This means any gifts with a fair market value of $16,000 or less are not taxable. However, any gifts with a fair market value over $16,000 are taxable at the gift tax rate.

Lifetime gift tax exemption

The lifetime gift tax exemption for 2022 is $12.06 million. If you exceed the annual gift tax exclusion for any gift(s), you must pay gift taxes and the total is subtracted from your lifetime gift tax exemption.

Gift tax rates in 2023

Annual gift tax exclusion

The annual gift tax exclusion for 2023 is $17,000. This means any gifts with a fair market value of $17,000 or less are not taxable. However, any gifts with a fair market value over $17,000 are taxable at the gift tax rate.

How stock & crypto gifts are taxed

Gift givers of stock and cryptocurrency gifts may be subject to gift taxes if the value of the gift is over the annual gift tax exclusion. The IRS considers the fair market value of the asset when gifted (we define this below!).

The taxpayer recipient of gifted stock or crypto assets will also pay capital gains taxes on the gift when they sell it, assuming the value of the asset grows between the time the gifter purchased it and the sale.

If the recipient holds the assets for more than one year, they pay what’s called long-term capital gains taxes. Long-term capital gains taxes are taxed anywhere from 0–20% depending on what tax bracket the recipient is in. However, assets held for a year or less are taxed at the short-term capital gains tax rate, which are the same rates as ordinary income tax.

This is true whenever anyone sells a capital asset, whether or not they received it as a gift.

When paying taxes after the sale, the gift recipient will need to know three things:

1. Cost basis: What price was one stock or coin/token when you purchased it, and how many did you buy? Multiply these numbers to get the total amount of your cost basis. You can also check your brokerage account for this information. On Public.com, you can make quick changes to your investing portfolio thanks to features like Debit Card Funding and Instant Withdrawals. While the market changes quickly, this gives you better control over your cost basis for any particular stocks, crypto, or other market-based assets.
2. Fair market value when gifted: For example, maybe you purchased the stock on July 1 of a given year, but didn’t gift the stock until December 15 of the following year. The fair market value is the market rate of the asset on the latter date.
3. Length of time they held the stock: The giver won’t know this when they give the gift, but they can share the date purchased and date gifted for reference. All that really matters is whether it was held for more or less than one year, since that’s the cut-off between short- and long-term capital gains taxes.

This information can usually be found via the brokerage account with which the stocks were initially purchased or placed. However, it’s a good idea to let the recipient know these details, as long as they’re old enough to understand (if you’re gifting stock to a child, hold onto this information for later).

How to report and pay the gift tax

Use IRS form 709 to report gifts above the annual exclusion and pay the gift tax. Simply fill out the tax form and attach it to your federal tax return.

Want to know how gifting might impact your tax bill? Use our capital gains tax calculator to get an estimate of the potential tax consequences

Bottom line on the gift tax limit

There are ways around the gift tax, so it’s important to be aware of the potential tax consequences so you can avoid paying taxes on gifts if possible. This includes any gift with monetary value in which you expect nothing in return, from cars and vacations to stocks and crypto.

If you’re still unsure whether you owe gift taxes, consult with a tax professional or financial advisor for any questions regarding gifts you’ve given over the course of the tax year.