Here's a quick summary of gifts that are both taxable and nontaxable for tax purposes:
Gift Tax Rules:
- Giving cash gifts is generally considered tax-deductible. It is the responsibility of the giver to report the gift to the IRS and pay any applicable taxes. Gifts exceeding this amount may be subject to gift tax.
- Non-U.S. citizens are eligible for gifts: The spouses of citizens are subject to different laws and may be taxable.
- Gift tax rules also apply to gifts of property, such as cars or real estate.
Non Gift Tax Rules:
- In 2025, gifts that fall within the annual exclusion limit of $19,000 per recipient are exempt from taxation.
- Payments made directly to an educational institution for tuition or to a medical facility for someone's medical expenses are not taxed.
- It is not generally taxed when you give unlimited gifts to your U.S. citizen spouse.
- If given infrequently, small gifts like flowers, books, or a small amount of food are usually not taxed.
Here is an example outlined regarding the distinction between taxable and nontaxable gifts.
Which of these gifts are subject to taxation?
- Transferring wealth to a family member who is dependent and requires support.
- The payment for son's tuition fees for law school.
- The payment of $18,000 worth of medical bills for a friend.
Section 2503(e) defines gifts that are taxed. The specific exclusion is for bona fide transfers made on behalf of an individual for tuition to an educational organization or payment to someone who provides medical care for that individual. The payment of a son's law school tuition (II) or $18,000 in medical expenses for a friend (III) is exempt from taxation. Transfers that represent support are not gifts, therefore item I is not subject to taxation.
