How Much Is Gift Tax on a House: Rates, Limits, and Form 709

Federal gift tax on a house runs from 18% to 40% of the taxable value, but almost no one giving away a home actually pays it. For 2026, each person has a $15 million lifetime gift and estate tax exemption, and gift tax only becomes due after that entire amount has been used up.¹ A gift tax return (Form 709) is still required whenever a gift to one recipient exceeds the $19,000 annual exclusion, even when no tax is owed. The larger financial hit from gifting a house usually shows up later, when the recipient sells and owes capital gains on decades of appreciation.

How the Taxable Gift Is Calculated

The taxable value is the fair market value of the property on the date of the gift, not what the donor paid for it years ago.² Fair market value means what a willing buyer would pay a willing seller on the open market. Expect to pay for a written appraisal from a certified residential appraiser; the IRS wants either that qualified appraisal or a detailed valuation explanation attached to Form 709.³

If the recipient pays something (but less than market value), only the shortfall is a gift. A parent selling a $500,000 house to a child for $200,000 has made a $300,000 gift.² A mortgage the recipient assumes works the same way. If that $500,000 home carries a $150,000 loan the child takes over, the gift shrinks to $350,000.

The Two Shields Between You and a Tax Bill

Two exclusions do the work of keeping almost every house gift tax-free.

The first is the annual exclusion, set at $19,000 per recipient for 2026.⁴ Because houses cost far more than $19,000, this exclusion only trims a small slice off the top. Give a $400,000 home and $381,000 remains as the taxable portion reported on Form 709.

The second shield is the one that actually eliminates the tax for the vast majority of donors: the lifetime gift and estate tax exemption, which sits at $15 million per individual for 2026. That figure was made permanent by the One, Big, Beautiful Bill signed into law on July 4, 2025, and it continues to adjust for inflation.¹ When you file Form 709, the taxable portion of the gift is deducted from your remaining lifetime exemption rather than triggering a payment. Tax is only owed once cumulative lifetime gifts push past that $15 million line.

For nearly every family, then, the return is paperwork. The IRS uses each filing to keep a running tally of how much exemption you’ve spent, which also feeds into your estate tax calculation when you die.

Federal Gift Tax Rates

If lifetime gifts do break past the exemption, the rate schedule is progressive, starting at 18% on the first $10,000 of taxable gifts and rising to 40% on amounts above $1 million.⁵ In practice, anyone who actually owes gift tax pays at or near the top 40% rate. That’s because the schedule applies to cumulative lifetime gifts, and by the time a donor has used up $15 million of exemption, the lower brackets have long since been absorbed.

The donor is legally on the hook for any tax owed. The recipient does not owe gift tax on property received, though the IRS can pursue them if the donor fails to pay.

Married Couples Can Double Everything

If one spouse owns the house and gifts it, the couple can elect to treat the gift as if each spouse made half. That doubles the annual exclusion to $38,000 for 2026 and, more importantly, lets the couple draw from two $15 million exemptions, sheltering up to $30 million combined.⁴

The election has strings. Both spouses must consent, they must have been married when the gift was made, and once elected, splitting applies to every gift either spouse made to any third party that year. The non-donor spouse signs a consent statement on the donor’s Form 709, and in most cases each spouse files a separate Form 709.³ Only one return is needed when just one spouse made gifts, no recipient got more than $38,000, and every gift was a present interest.

The Bigger Cost: Capital Gains for the Recipient

Gift tax is usually the smaller problem. The larger one lands when the recipient sells the house.

A gifted house comes with the donor’s original cost basis, adjusted for capital improvements. This is called carryover basis.⁶ Parents who bought a house in 1990 for $120,000 and gift it today at a $500,000 market value pass along a $120,000 basis (plus any major improvements they made). If the child sells for $500,000, capital gains apply to up to $380,000 of profit.

Inheriting the same house works very differently. Property that passes through an estate after death gets a stepped-up basis equal to fair market value on the date of death.⁷ If the house is worth $500,000 at the parent’s death, the heir’s basis is $500,000, and an immediate sale produces no capital gain. On a highly appreciated home, the difference between gifting during life and leaving it as an inheritance can easily reach six figures in tax.

There is one narrow adjustment. If gift tax was actually paid (meaning the donor had already exhausted their lifetime exemption), the recipient’s basis increases by a portion of that gift tax, though it can’t push basis above the property’s fair market value at the time of the gift.⁶

If the House Has a Mortgage

A remaining loan balance reduces the taxable gift, as covered above. It can also create a part-gift, part-sale that triggers capital gains for the donor if the mortgage balance is higher than their adjusted basis. That math gets complicated quickly, and it’s one place where a tax professional earns their fee.

There’s also a lender problem to watch. Most mortgages contain a due-on-sale clause allowing the lender to demand full repayment when ownership changes. Federal law prevents lenders from enforcing that clause when the transfer is to a spouse or a child, so long as the property has fewer than five dwelling units.⁸ That protection stops there. Gifting a mortgaged house to a sibling, niece, nephew, or friend can prompt the lender to call the loan.

Filing Form 709

Any gift above the $19,000 annual exclusion requires the donor to file Form 709, even when no tax is due.³ The return needs both parties’ names and Social Security numbers, the legal property description from the deed, the appraised fair market value, the donor’s adjusted basis (purchase price plus capital improvements), and any consideration the recipient provided such as cash or an assumed mortgage.

The deadline is April 15 of the year after the gift. An automatic extension on your individual income tax return (Form 4868) also extends Form 709 by six months; if you don’t need an income tax extension, Form 8892 gets the same six months for the gift return alone.⁹ An extension moves the filing date, not the payment date; any tax owed is still due April 15.

Keep your filed return and the appraisal indefinitely. The IRS sends no acknowledgment, and those records are your only proof of how much lifetime exemption you’ve used. The recipient will also need them to establish basis when they eventually sell.

Medicaid Has Its Own Rules

Federal gift tax law and Medicaid eligibility rules operate independently, and older donors regularly get caught by the mismatch. Federal law requires states to review every asset transfer made in the 60 months before a Medicaid application.¹⁰ Giving away a house below fair market value in that five-year window creates a penalty period during which Medicaid won’t pay for nursing home or other long-term care. The penalty length equals the uncompensated transfer value divided by the average daily cost of private nursing home care in the region.

The $19,000 IRS annual exclusion means nothing here. A transfer that’s clean for federal gift tax can still bring a Medicaid penalty. Federal law does exempt certain home transfers from the penalty, including transfers to a spouse; a child under 21; a blind or permanently disabled child; a sibling with an existing equity interest who lived in the home for at least a year before the donor entered a facility; or an adult child who lived in the home for at least two years providing care that delayed institutionalization.¹⁰

What Happens if You Skip the Return

Failing to file Form 709 has consequences even when no tax is owed. When tax is owed and the return is late, the IRS charges a failure-to-file penalty of 5% of the unpaid tax per month, capped at 25%, plus a failure-to-pay penalty of 0.5% per month, also capped at 25%.¹¹

When no tax is owed, the risk is subtler but real. The statute of limitations on the IRS assessing gift tax doesn’t start running until a return has been filed with adequate disclosure, including the qualified appraisal. Without a return on file, the agency can revisit the gift years or decades later, revalue the property, and recalculate your remaining lifetime exemption at the worst possible time, often after the donor’s death, when the estate is being settled.

1
Internal Revenue Service. What’s New – Estate and Gift Tax
2
Office of the Law Revision Counsel. 26 USC 2512 – Valuation of Gifts
3
Internal Revenue Service. Instructions for Form 709 (2025)
4
Internal Revenue Service. Frequently Asked Questions on Gift Taxes
5
Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
6
Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
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Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired from a Decedent
8
Office of the Law Revision Counsel. 12 USC 1701j-3 – Preemption of Due-on-Sale Prohibitions
9
eCFR. 26 CFR 25.6081-1 – Automatic Extension of Time for Filing Gift Tax Returns
10
Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
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Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax