No, they are not exempt, but they may be able to claim a credit against gift tax. Please note this IRS website that discusses gift tax: Frequently Asked Questions on Gift Taxes | Internal Revenue Service
How this will work: your parents split the gift (they each give you 250,000). Then, they can deduct 14,000 from the gift each. (If the gift was made this year, they can subtract 15,000 each). Finally, they can deduct the gift amount from their lifetime exempt gift and estate tax amount. In 2017 that amount was 5.5 million/ spouse. If they used their credit, then they now have roughly 5.25 million of gift and estate transfer that is exempt from tax. (Exempt amount goes up significantly in 2018). For more information, click on this following article link: Final Tax Bill Includes Huge Estate Tax Win For The Rich.
However, they still must file a gift tax return if the amount of the gift exceeds the yearly exemption amount, even if they do not end up having to pay any gift tax on the amount at this time.
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