Module Overview

Gifts transfer wealth during a donor’s lifetime and can serve important financial‑planning and estate‑planning objectives. For federal tax purposes the tax consequences of a gift depend primarily on the identity of the recipient and the nature of the transfer. Contributions made to a charity are treated differently from those transfers made to individuals. Charitable contributions to qualified organizations are generally eligible for an income tax deduction when the donor itemizes their deductions (see §170). These transfers are also recognized as allowable charitable deductions for estate and gift tax purposes under the unified transfer tax system (see §§ 2055 and 2522).

In contrast, transfers to individuals are governed by the federal gift tax regime. The donor, not the recipient, is generally liable for any gift tax that may be due (§2501), although most transfers will not generate an immediate gift tax payment because of the annual exclusion and the lifetime unified credit. From an income tax perspective, recipients of a gift generally do not recognize the gift as income (see § 102), but they must be aware of the tax basis of the property received. The donee’s basis for determining gain on a future sale is ordinarily the donor’s adjusted basis at the time of the gift, known as carryover basis rules under IRC §1015. These special rules apply in certain loss and basis‑adjustment circumstances. In contrast, property received from a decedent typically receives a stepped‑up basis under IRC §1014.

Charitable Donations – Gifting Assets to Charities 

Income Tax Implications (§170)

See IRS Video – can I deduct my charitable contribution

Charitable contributions can reduce taxable income when a taxpayer elects to itemize, but the tax benefit depends on the type of recipient, the kind of property donated, and compliance with substantiation and AGI‑limitation rules. The federal income‑tax deduction for gifts is governed principally by Internal Revenue Code §170 and related regulations; to claim a deduction, a taxpayer must transfer property to a qualifying organization and satisfy the statutory requirements for substantiation, valuation, and timing.

Only transfers to qualifying organizations as defined in IRC §170(c) are eligible for the income‑tax charitable deduction. Gifts to individuals do not qualify. For cash gifts exceeding $250, the donor must obtain a contemporaneous written acknowledgement from the donee documenting the amount, date, and whether any goods or services were provided. For noncash donations, taxpayers generally must file Form 8283 when the total annual deduction for noncash gifts exceeds $500, and a qualified appraisal is required for most claimed values above $5,000 unless a statutory exception applies (for example, publicly traded securities).  

A charitable contribution may be in form of cash or property. The valuation of non-cash property for the purpose of determining the deductible amount depends on the property type and how charitable organization used the property contributed.

Long‑term capital gain property, assets that would produce long‑term capital gain if sold, such as publicly traded securities held more than one year, is generally deductible at fair market value at the time of the gift (see IRC §170(e)), subject to applicable percentage limits. Ordinary income property, in contrast, is typically deductible only to the extent of the donor’s adjusted basis (see IRC §170(e)(1)), unless a statutory exception allows a different measure. Special valuation and substantiation rules apply to gifts of partial interests, tangible personal property, and inventory.

Certain types of property require additional attention. For example, deductions for donated vehicles may be limited by how the charity uses or disposes of the vehicle: if the charity sells the vehicle without significant use or material improvement, the donor’s deduction is generally limited to the gross proceeds; if the charity uses the vehicle for its exempt purposes or materially improves it, the donor may be able to deduct fair market value, subject to substantiation requirements (see Internal Revenue Code §170(f)(12) and IRS Publication 526 for guidance). Similar use‑based limits appear for donated artwork and other specialized property.

See video for Form 8283 noncash charitable contribution walkthrough

The maximum deductible amount in a single tax year is limited by a percentage of taxpayer’s Adjusted Gross Income (AGI). Any excess contributions can generally be carried forward for up to five subsequent tax years (§ 170(d)).  For purposes of the charitable‑contribution AGI limits, a “50% organization” generally refers to public charities and certain private operating foundations described in Internal Revenue Code §170(b)(1)(A). A “30% organization” generally denotes a private non‑operating foundation described in Internal Revenue Code §170(b)(1)(B). The deductions are generally applied in the following order to maximize the current year’s deduction.

• Cash Contributions to Public Charities and Private Operating Foundations (“50% organizations”):
  • Limited to 60% of AGI.
• Value of Ordinary Income Property Donated to Public Charities and Private Operating Foundations (“50% organizations”):
  • Limited to 50% of AGI minus cash contributions to 50% organizations
• Long-term Capital Gain Property Donated to Public Charities and Private Operating Foundations (“50% organizations”):
  • Limited to 30% of AGI minus cash contributions subject to 60% or 50%
• Cash Contributions or Value of Ordinary Income Property Donated to Private Non-Operating Foundations (“30% Organizations”):
  • Limited to the lesser of:
    • 30% of AGI.
    • 50% of AGI, reduced by all contributions to 50% organizations.
• Long-term Capital Gain Property to Private Non-Operating Foundations (“30% Organizations”):
  • Limited to the lesser of:
    • 20% of your AGI.
    • 30% of your AGI, reduced by any capital gain property contributions subject to 30% AGI limit
    • 30% of your AGI, reduced by any other property contributions subject to 30% AGI limit
    • 50% of your AGI, reduced by the sum of all contributions subject to 60%, 50%, or 30%.

Transfer Tax Implications (IRC §2522 and §2055)

Charitable donations to qualified organizations have favorable federal transfer‑tax consequences. For federal gift tax purposes, transfers to qualifying charities are generally excluded from a donor’s taxable gifts under Internal Revenue Code §2522, so a completed gift to a qualified charity does not consume the donor’s lifetime unified credit or trigger gift tax in most cases. For estate tax purposes, bequests and certain lifetime transfers to qualified charities are deductible from the decedent’s gross estate under IRC §2055, thereby reducing the taxable estate and potential estate tax liability.

Gifting Assets to Individuals

What are Gifts?

IRC Section 2511(a) broadly characterizes taxable “gifts” as nearly any transfer of property made by an individual. This encompasses transfers conducted directly or indirectly, whether in trust or otherwise, and covers all types of assets, including real, personal, tangible, or intangible. Two key elements for a transfer to qualify as a gift under this provision is that the donor must relinquish complete control over the property and the transfer itself must involve less than full consideration of its worth..

A gift must first be complete to be considered for gift tax purposes. If it’s incomplete, it’s not a gift subject to tax yet. Once a gift is determined to be complete, the next step is to determine if it’s a present interest or future interest to see if it qualifies for the annual exclusion.

Complete vs. Incomplete Gifts

The distinction between a complete gift and an incomplete gift hinges on whether the donor has irrevocably and unconditionally transferred ownership and control of property. Under Treasury Regulation 25.2511-2(b), a gift is considered complete when the donor has so parted with dominion and control over the property that there remains no power in the donor to change its disposition. In practical terms, a completed gift is an unconditional, irrevocable transfer in which the donor has relinquished both legal control and beneficial enjoyment of the asset.

A completed gift has several important legal and tax consequences. For gift tax purposes the transfer is treated as a taxable gift at the time the gift is made under Internal Revenue Code section 2501, subject to any available annual exclusions and the donor’s remaining lifetime unified credit. For estate tax purposes a completed gift generally removes the property from the donor’s gross estate, provided the donor retains no other incidents of ownership that would cause inclusion under the estate tax rules. Typical examples of completed gifts include handing cash to another person, transferring marketable securities with clear title to the donee, or executing a deed conveying real property without retained powers or conditions.

By contrast, Treasury Regulation 25.2511-2(c) describes an incomplete gift as any transfer in which the donor retains a power that enables the donor to revest beneficial title in himself, or to change the beneficiaries or their respective interests in ways that are not limited by a fixed or ascertainable standard. An incomplete gift therefore arises whenever the donor retains sufficient control over the transferred property so that the transfer lacks the finality required for gift tax treatment.

An incomplete gift typically carries different tax consequences than a completed gift. Because the donor has not yet relinquished the requisite dominion and control, the transfer is not subject to gift tax at the time of the transfer, and it does not reduce the donor’s lifetime gift and estate tax exemption. Moreover, assets subject to an incomplete gift generally remain includible in the donor’s gross estate at death under the estate tax inclusion rules, because the donor retains powers or incidents of ownership that the estate tax provisions treat as equivalent to ownership.

Present vs. Future Interests

The tax law distinguishes between present and future interests in determining whether a gift is complete for gift‑tax purposes. A present interest exists when the donee receives an immediate and unrestricted right to use, possess, or enjoy gifted property or its income; the donor must have relinquished dominion and control so that no power remains to revest beneficial title (Treas. Reg. 25.2511‑2(b)). Common examples include outright cash transfers, immediate delivery of marketable securities, deeds conveying clear title, and trust contributions accompanied by an enforceable Crummey withdrawal right. Present‑interest gifts qualify for the annual gift tax exclusion under Internal Revenue Code §2503(b), allowing a donor to transfer up to the applicable exclusion amount per donee without reducing the lifetime unified credit, provided the transfer is properly documented and substantiated.

By contrast, a future interest exists when the donee’s right to possession, use, or enjoyment is postponed to a later time or conditioned on the occurrence of a future event (Treas. Reg. 25.2503‑3(a)). Examples include remainder interests that vest after a life estate ends, trust distributions payable only upon reaching a specified age, and transfers to revocable trusts in which the grantor retains broad powers such as revocation or an unrestricted power of appointment. Future interests do not qualify for the annual exclusion, are generally reportable on Form 709, and are counted against the donor’s lifetime exemption; because retained powers can lead to estate‑inclusion, transfers that appear incomplete should be evaluated for both gift and estate tax consequences.

Gift Tax Calculation

Calculating federal gift tax begins by identifying and valuing each transfer that constitutes a completed gift at the date of transfer, using fair market value to measure the transfer amount. Gifts to a single donee are aggregated for the calendar year and reduced by the per‑donee annual exclusion and any specific statutory exclusions (for example, certain educational or medical payments made directly to institutions and transfers to qualifying charities), leaving the donor’s annual taxable gifts. Any taxable gifts for the year are added to the donor’s cumulative taxable gifts to determine how much, if any, of the donor’s lifetime unified credit (or basic exclusion amount) has been used; the donor then applies the unified transfer tax rate schedule to the cumulative taxable amount to compute tentative tax and subtracts the unified credit to arrive at tax due. Special rules and deductions, such as the unlimited marital deduction, qualified charitable deductions, valuation rules for noncash gifts, and generation‑skipping transfer considerations, modify the taxable base or permit exclusions. Donors report reportable gifts and allocate exemption on Form 709.

Unified Transfer Tax System-Gift and Estate Taxes

The Unified Transfer Tax System is the federal framework that imposes taxes on the transfer of wealth, whether it occurs during a person’s lifetime (via gifts) or at their death (via their estate). This system unifies the federal gift tax and the federal estate tax, meaning that there is a single, combined exemption amount that applies to all taxable transfers made throughout a person’s life and at their death.

Gift Tax Compliance (IRC Chapter 12)

The federal gift tax is imposed on the transfer of property by one individual to another for less than full and adequate consideration while the donor is alive.

• Donor Pays the Tax: The donor (the person making the gift) is generally responsible for paying the gift tax, not the recipient (donee). Generally, the recipient of a gift does not have to pay income tax on the value of the gift. Gifts are excluded from the recipient’s gross income (§ 102).
• Annual Gift Tax Exclusion: An individual can give up to $19,000 per year per recipient in 2025 without triggering any gift tax or using any of their lifetime exemption (IRC Section 2503(b)). These gifts do not need to be reported to the IRS.
  • Gift Splitting: Married couples can elect to “split” gifts (IRC Section 2513), allowing them to give up to twice the annual exclusion amount per recipient (e.g., $38,000 in 2025). This requires consent from both spouses and typically the filing of Form 709.
• Taxable Gifts: Any gift to an individual exceeding the annual exclusion amount in a given year is a “taxable gift.” These gifts reduce the donor’s unified lifetime exemption. Actual gift tax is only paid if the cumulative total of taxable gifts made over a person’s lifetime exceeds their unified exemption.
• Exempt Gifts (Unlimited Exclusions): Certain gifts are completely exempt from gift tax, regardless of amount:
  • Gifts to a U.S. Citizen Spouse: Unlimited marital deduction (IRC Section 2523).
  • Direct Payments for Tuition or Medical Expenses: Payments made directly to an educational institution for tuition or to a medical provider for medical care (IRC Section 2503(e)).
  • Gifts to Qualified Charities: Unlimited charitable deduction (IRC Section 2522).

Gift Tax Form: IRS Form 709

• Purpose: The “United States Gift (and Generation-Skipping Transfer) Tax Return” (Form 709) is used by donors to report gifts that exceed the annual exclusion amount, gifts of “future interests,” or gifts subject to GST tax.
• Filing Requirement: Even if no gift tax is owed due to the lifetime exemption, Form 709 must be filed to report taxable gifts and track the use of the unified exemption.
• Deadline: Generally due by April 15 of the year following the gift.

Estate Tax Compliance (IRC Chapter 11)

The federal estate tax is a tax on the right to transfer property at death. It is calculated on the value of the “gross estate” (all assets the decedent owned or controlled at death), reduced by allowable deductions, to arrive at the “taxable estate.”

• Gross Estate: Includes all property (e.g., real estate, financial accounts, life insurance proceeds if the decedent owned the policy, retirement accounts, business interests, and certain transfers made within three years of death).
• Deductions from the Gross Estate:
  • Funeral and Administration Expenses: Reasonable costs of administering the estate.
  • Debts of the Decedent: Outstanding liabilities.
  • Marital Deduction: An unlimited marital deduction (IRC Section 2056) for transfers to a surviving spouse who is a U.S. citizen. This allows for tax deferral until the second spouse’s death.
  • Charitable Deduction: An unlimited charitable deduction (IRC Section 2055) for transfers to qualified charitable organizations.
• Taxable Estate: The gross estate minus allowable deductions. The unified credit is then applied against the tentative estate tax.
• Portability: For married couples (IRC Section 2010(c)), this allows the executor of a deceased spouse’s estate to transfer any unused portion of their unified exemption (the Deceased Spousal Unused Exclusion, or DSUE) to the surviving spouse. This can effectively double the exemption for a couple. Portability must be elected on a timely filed Form 706.

Estate Tax Form: IRS Form 706

• Purpose: The “United States Estate (and Generation-Skipping Transfer) Tax Return” (Form 706) is filed by the executor of a decedent’s estate to calculate and report any federal estate tax due.
• Filing Requirement: Form 706 must be filed if the decedent’s gross estate, plus any adjusted taxable gifts made during life, exceeds the unified exemption amount for the year of death. It is also filed to elect portability for a surviving spouse, regardless of the estate’s size.
• Deadline: Generally due nine months after the date of the decedent’s death, with a six-month extension usually available by filing Form 4768

Tax Planning Considerations for Charitable Donations

When evaluating charitable giving strategies, timing is an important determinant of the tax benefit. One common strategy is “bunching” contributions: concentrate several years’ worth of charitable gifts into a single tax year so that itemized deductions exceed the standard deduction in that year, then take the standard deduction in intervening years. Donor‑advised funds (DAFs) are a useful vehicle to implement bunching. A donor contributes cash, appreciated securities, or other assets to a DAF and receives an immediate income‑tax deduction in the year of contribution; the contributed assets can be invested and grow tax‑free inside the fund, while grants to operating charities can be recommended over subsequent years to accomplish long‑term philanthropic goals.

Gifting strategies can also change the tax character of an anticipated disposition. Donating appreciated long‑term capital gain property directly to a qualified charity generally permits the donor to deduct the fair market value of the asset and avoid recognition of the capital gain that would arise on a sale. This often yields a larger tax benefit than selling the asset, paying capital gains tax, and then donating the after‑tax proceeds. For certain taxpayers, Qualified Charitable Distributions (QCDs) provide additional income‑tax benefits: generally available to IRA owners age 70½ or older, a QCD allows a direct transfer from a Traditional IRA to a qualified charity that counts toward the owner’s Required Minimum Distribution (RMD) without increasing adjusted gross income (AGI). QCDs can therefore be especially attractive for donors who do not itemize or who wish to reduce AGI for other tax purposes.

Tax benefits depend on both the type of donee and the character of the gifted property. Limits on charitable deductions (for example, percentage‑of‑AGI caps and substantiation requirements) and the rules governing donor‑advised funds and QCDs affect the timing and magnitude of the tax advantage. Donors should maintain contemporaneous records (receipts, acknowledgements, and appraisals when required), consider the interaction of gifts with other tax planning objectives, and model alternative timing scenarios to identify the most favorable outcome.