The federal gift tax applies when you transfer money or property to someone without getting equal value back. For 2026, you can give any one person up to $19,000 in a year without filing anything, and a lifetime exemption of $15 million per person means almost no American ever writes a check to the IRS for gift tax. The rules still matter, though, because larger transfers trigger paperwork, and the way a gift is structured can affect what your recipient owes later.
What Counts as a Gift
Federal law defines gifts broadly. The tax covers transfers of any kind of property, whether real estate, cash, investments, or personal belongings, and whether the transfer is made directly or through a trust.1Office of the Law Revision Counsel. 26 USC 2511 – Transfers in General What the IRS looks at is whether the recipient gave something of equal value back. Sell a house worth $400,000 to a relative for $100,000, and you’ve made a $300,000 gift. Intent doesn’t matter. The gap between what you got and what the property was worth is what triggers the tax.
A gift doesn’t have to be cash or something tangible. Forgiving a debt, adding someone to a bank account, or selling stock at a steep discount all count. Interest-free or below-market loans can create a deemed gift in some circumstances too. The test is always the same: did something of value move from you to someone else without full compensation coming back?
The Annual Exclusion
The annual exclusion lets you give a set amount to each recipient every year with no tax consequences and no paperwork. For 2026, that amount is $19,000 per person.2Internal Revenue Service. What’s New – Estate and Gift Tax There’s no cap on how many recipients you can pick. Give $19,000 to each of five grandchildren, and none of it requires reporting or touches your lifetime exemption.
The recipient must have an immediate right to use the property. Gifts of future interests, where the recipient can’t access the property until some later date, don’t qualify for the annual exclusion.3Internal Revenue Service. Instructions for Form 709 (2025) A gift to an irrevocable trust that pays out at age 30 is a future interest. Contributions to 529 education savings plans, on the other hand, are specifically treated as present interest gifts even though the beneficiary may not spend the money for years.
Gift Splitting for Married Couples
If both spouses agree, a gift from one spouse can be treated as if each spouse gave half.4Office of the Law Revision Counsel. 26 USC 2513 – Gift by Husband or Wife to Third Party That doubles the annual exclusion to $38,000 per recipient in 2026. The election requires filing Form 709, and both spouses become jointly liable for any resulting tax. Both must be U.S. citizens or residents at the time of the gift, and they must remain married through the end of the calendar year, or at least not remarry someone else.
The $15 Million Lifetime Exemption
When a gift exceeds the $19,000 annual exclusion, the excess doesn’t automatically trigger tax. Instead, it reduces your lifetime exemption. For 2026, that exemption is $15 million per person, or $30 million for a married couple.2Internal Revenue Service. What’s New – Estate and Gift Tax The same pot covers gifts made during your lifetime and transfers at death through your estate, which is why it’s called the unified credit.
Here’s how the math works. Say you give your daughter $519,000 in 2026. The first $19,000 falls under the annual exclusion. The remaining $500,000 gets reported on Form 709 and drops your lifetime exemption from $15 million to $14.5 million. No tax is owed. You’d only cut a check to the IRS after cumulative lifetime gifts above the annual exclusion exceed $15 million, at which point the rate on additional gifts reaches 40%.5Peter G. Peterson Foundation. What Are Estate and Gift Taxes and How Do They Work?
The $15 million figure is new. The One, Big, Beautiful Bill Act, signed into law on July 4, 2025 as Public Law 119-21, raised the basic exclusion amount from $13.99 million and made the higher figure permanent, with inflation adjustments starting in 2027.2Internal Revenue Service. What’s New – Estate and Gift Tax
Transfers That Are Never Taxable
Certain transfers sit entirely outside the gift tax system. They don’t reduce your annual exclusion or your lifetime exemption, and most don’t require any filing.
Gifts Between Spouses
The unlimited marital deduction lets you transfer any amount to your spouse tax-free, as long as your spouse is a U.S. citizen.6eCFR. 26 CFR 25.2523(i)-1 – Disallowance of Marital Deduction When Spouse Is Not a United States Citizen There’s no cap and no reporting requirement. If your spouse is not a U.S. citizen, the unlimited deduction doesn’t apply. You get a higher annual exclusion instead: $194,000 for 2026.7Internal Revenue Service. Frequently Asked Questions on Gift Taxes for Nonresidents Not Citizens of the United States Anything above that must be reported and will reduce the donor spouse’s lifetime exemption.
Tuition and Medical Payments
Payments for someone else’s tuition or medical expenses are fully exempt, but only if you pay the institution or provider directly. Writing a check to a university for your grandchild’s tuition is not a gift. Handing your grandchild the same amount so they can pay the bill themselves is a gift, subject to the annual exclusion. The same rule applies to hospital bills and health insurance premiums. The payment has to go straight to the provider to qualify.
Charitable Gifts
Gifts to qualifying charitable organizations, including religious organizations, educational institutions, and government entities operated for public purposes, are deductible from your total taxable gifts for the year.8Office of the Law Revision Counsel. 26 USC 2522 – Charitable and Similar Gifts Unlike the income tax charitable deduction, there’s no percentage-of-income cap. Give $5 million to a qualified charity in a single year and you can deduct the full amount from your taxable gifts.
What the Recipient Owes
Receiving a gift is not taxable income. You won’t owe federal income tax on a gift, and you don’t need to report it on your return. But if you later sell gifted property, the carryover basis rule kicks in.
Your tax basis in gifted property is generally the same as the donor’s basis, meaning what they originally paid plus any improvements.9Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust If your grandmother bought stock for $10 a share and gives it to you when it’s worth $100, your basis is $10. Sell at $100 and you owe capital gains tax on $90 per share.10Internal Revenue Service. Frequently Asked Questions on Gift Taxes That embedded gain is a real cost recipients often miss when they compare a gift to an inheritance, which typically gets a stepped-up basis.
Filing Form 709
You must file IRS Form 709 whenever your gifts to any single recipient exceed $19,000 in a calendar year. You also need to file if you and your spouse elect gift splitting, even if no individual gift crosses the exclusion. The donor is the one who files and, if any tax is owed, pays it.10Internal Revenue Service. Frequently Asked Questions on Gift Taxes The recipient files nothing.
Form 709 is due by April 15 of the year after the gift. A tax extension on your income tax return automatically extends Form 709 to October 15, and you can also request a standalone six-month extension for the gift tax return alone.11eCFR. 26 CFR 25.6081-1 – Automatic Extension of Time for Filing Gift Tax Returns
The form asks for identifying information about each recipient and enough detail about the property for the IRS to identify it: number of shares in a specific company, the legal description of real estate, and so on.3Internal Revenue Service. Instructions for Form 709 (2025) Schedule A asks for two values: your adjusted basis and the fair market value on the date of the gift. The fair market value determines how much lifetime exemption the gift uses. The adjusted basis travels with the property and becomes the recipient’s starting point if they ever sell.
Skipping Form 709 when you were required to file compounds over time. The IRS charges penalties for late filing and late payment, and the statute of limitations on gift tax assessment doesn’t start running until a return is filed.3Internal Revenue Service. Instructions for Form 709 (2025) That means the IRS can reassess unreported gifts years or even decades later. For anyone whose estate will approach the lifetime exemption, an unfiled return also creates a problem for the executor, who won’t have a clear record of how much exemption was used during the donor’s lifetime.