Legal Definitions - federal gift tax

The federal gift tax is a tax imposed by the federal government on a person who gives property to another person without receiving anything in return. The property given must exceed a certain amount set by the government to be subject to the tax.

For example, if you give your friend a car worth $20,000 as a gift and your friend does not give you anything in return, you may be subject to the federal gift tax.

However, there is a gift exclusion amount that changes each year. As of 2023, the gift exclusion amount is $17,000. This means that you can give up to $17,000 to a person without having to pay the federal gift tax.

If you give a gift that exceeds the exclusion amount, you will have to pay a tax on the excess amount. The federal gift tax rate varies from 18% to 40% depending on the size of the gift.

Overall, the federal gift tax is a way for the government to collect taxes on large gifts that are given without receiving anything in return.