Definition
A federal tax on large lifetime gifts, owed by the giver, not the recipient. Each year you can give any number of people up to an annual exclusion amount with no paperwork; gifts above it must be reported but usually just reduce your lifetime exemption, which is shared with the estate tax and very high. Actual tax is rarely owed.
Why it matters
The gift tax mostly generates unnecessary fear: parents worry that helping with a down payment triggers a tax bill, when in reality it triggers, at most, a form. Recipients owe nothing, and gifts are not income to them.
Example
A parent gives a child $60,000 toward a house. The portion above the annual exclusion goes on a gift tax return, which simply subtracts it from the parent's very high lifetime exemption. No one writes a check to the IRS, and the child reports no income.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.