Exposition: Introduces Jim and Della Young, a young married couple living in a small apartment. Sets the scene of financial struggle, highlighting their desire to give each other meaningful Christmas gifts despite limited resources.
Rising Action: Jim decides to sell his prized pocket watch to buy combs for Della's hair. Della decides to cut and sell her hair to purchase a fob chain for Jim's pocket watch. Both characters make personal sacrifices, setting the stage for the exchange of gifts.
Climax: On Christmas Eve, Jim and Della exchange their carefully chosen gifts. The irony becomes apparent as they realize the impracticality of the gifts due to each other's sacrifices.
Falling Action: Jim and Della grapple with the irony and unexpected outcomes of their sacrifices. Despite the material loss, they accept the situation with love and understanding.
Resolution: The story concludes with a reflection on the true spirit of giving and the depth of their love. Jim and Della's sacrificial acts are portrayed as a form of wisdom and true understanding, akin to the magi who brought gifts to the baby Jesus.