Gift Tax: What Does It Mean?

The gift tax is a federal tax on transfers of money or property to another person where you receive nothing (or less than full value) in return. The IRS sets an annual gift tax exclusion — in 2026, $19,000 per recipient — below which gifts are tax-free and don't need to be reported. Gifts above the annual exclusion must be reported on Form 709, but they don't necessarily result in an immediate tax bill. Instead, they reduce your lifetime gift and estate tax exemption ($15 million in 2026). The gift tax is designed to prevent people from avoiding estate taxes by giving away assets before death.