1001. On this Finance Friday, I’m clearing up the massive confusion surrounding "gift taxes." Many people are terrified to help their loved ones because they fear a surprise tax bill, but the reality is that the thresholds are much higher than you think. Whether you're helping with a down payment, paying for a grandchild’s tuition, or simply sharing your wealth while you're around to see them enjoy it, there are a few "golden rules" you need to know to stay on the right side of the IRS.
1001. On this Finance Friday, I’m clearing up the massive confusion surrounding "gift taxes." Many people are terrified to help their loved ones because they fear a surprise tax bill, but the reality is that the thresholds are much higher than you think.
Whether you're helping with a down payment, paying for a grandchild’s tuition, or simply sharing your wealth while you're around to see them enjoy it, there are a few "golden rules" you need to know to stay on the right side of the IRS.
In this episode, we discuss:
Find a transcript here.
Have a money question? Send an email to money@quickanddirtytips.com or leave a voicemail at (302) 364-0308.
Find Money Girl on Facebook and Twitter, or subscribe to the newsletter for more personal finance tips.
Money Girl is a part of Quick and Dirty Tips.
Links:
https://www.quickanddirtytips.com/
https://www.quickanddirtytips.com/money-girl-newsletter
https://www.facebook.com/MoneyGirlQDT
Bernice writes: "I'm retired and living comfortably with enough money to last my lifetime. Instead of waiting for an inheritance, I'd like to give my children some money now, while they really need it and can enjoy it. What are the gifting tax rules that I should know?"
Bernice, what a generous and thoughtful goal! There’s certainly a lot of confusion about gifting that I think makes some people scared to give away money. This podcast will review six things you should know about giving gifts to family or friends.
Hi everyone, and welcome to episode one thousand and ONE of Money Girl! That's right, we just celebrated our 1000th episode, and to celebrate, you might notice new show art!
This is Finance Friday, where I answer your burning money questions. I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, and founder of The Money Stack, that's my Substack newsletter. You can sign up for The Money Stack and learn more at LauraDAdams.com.
When it comes to taxes, a gift is something of value you give someone without receiving an equal value in return. For instance, you might transfer cash from your checking account to someone else’s bank account or write them a paper check.
You might pay someone’s mortgage or their credit card debt for them by sending money directly to their lender. That’s still considered a gift even if the recipient never physically received your money. However, there are exceptions for certain direct payments that I’ll review.
Another way you might give a gift is by giving someone your investments, like stocks, bonds, or index funds. For instance, you might transfer them from your brokerage account to theirs.
You could also give someone a physical property, like a home or a vehicle. Be aware that gifting investments or physical assets may result in future tax consequences for the recipient, and I’ll gonna review what you need to know.
It’s important to mention that a gift is different from a charitable contribution or a charitable donation that you might make to a qualified organization, like a religious institution, university, or charity. That’s because certain charitable donations come with tax benefits; however, you never receive a tax break for making a gift to an individual.
Here are six essential things you should know or consider before making a gift.
1. Any applicable gift tax is the responsibility of the giver.
If someone gives you $20 or $20 million, the gift tax burden is always on the giver. However, if you receive let's say $20,000 and deposit it in a high-yield savings account earning 4% APY, you would owe income taxes on the interest earned from that gift.
Bernice could give her children any amount, and they wouldn’t be responsible for income tax on the gift. As I mentioned, the tax burden for a gift always falls on the giver, but as I’ll gonna explain, it’s an extremely high threshold that only affects those with very high wealth.
2. Only massive gifts are subject to tax.
For 2026, you can give away up to $15 million (or $30 million as a couple) during your lifetime without having to pay any tax on those gifts. It’s only when you exceed that limit that you have to pay a federal gift tax on amounts over $15 million (or over $30 million as a couple). Plus, that limit doesn’t include gifts below the annual exclusion limit, which I’ll going to cover next.
Note that the $15 million lifetime limit combines the gifts you give and your estate value when you die. For example, if you give away $5 million during your life, you still have $10 million that you can give away at death before your estate would be subject to federal and any applicable state estate taxes.
However, this sky-high gift and estate exemption could be reduced if the tax code is changed by future legislation. The exemption has never been higher than it is right now.
3. There is an annual gift tax exclusion.
For 2026, you’re allowed to give away $19,000 to as many people as you wish, without it counting toward that lifetime limit of $15 million. For instance, if you’re married and let's say you have two children, each of you could give $38,000 ($19,000 x 2) to each of your children, for a total of $76,000 per year.
But what if you want to give a family member or friend more than the annual gift tax exclusion? Again that's $19,000 per person. And this trips up a lot of people because they fear owing tax on larger gifts.
Let’s say you want to give a child $100,000 for a down payment on a home. Yes, that’s higher than the annual exclusion of $19,000, but the IRS simply subtracts it from your $15 million lifetime limit.
So after subtracting the $19,000 exclusion from your gift of $100,000, there would be $81,000 remaining that you must report by filing IRS Form 709, United States Gift Tax Return. That return reduces your lifetime limit from $15,000,000 to $14,919,000, still a massive threshold!
So remember that you only pay gift or estate taxes if you manage to give away more than $15 million in life or death. That’s much more wealth than most of us could ever hope to give away! Plus, the annual and lifetime exemptions are indexed for inflation, and they will likely increase slightly each year.
If you need to file Form 709, it’s straightforward and should never prevent you from making a gift to anyone that you want to give a gift to. However, giving things (instead of cash) does come with some tax implications that I’ll talk about in just a moment.
RELATED: How to file taxes without overpaying
4. Spouses can make unlimited tax-free gifts to each other.
Married couples have an unlimited exclusion for making gifts to one another. A spouse can give the other spouse an expensive gift or cash as often as they like without it counting toward the annual gift exclusion of $19,000 or the $15 million lifetime limit. You don’t have to file Form 709, even if you give a spouse something huge like $50 million.
5. Taxes don’t apply to certain gifts.
There are a few situations where paying someone else’s expenses directly doesn’t count toward the $19,000 annual gift tax exclusion. These include paying a doctor or a hospital directly for a family member’s care. It also includes paying a school directly for a child’s or grandchild’s education.
Those aren’t the only gift exclusions that don’t eat into your annual or lifetime gift exemption, but they’re likely the most common ones. Remember that if you write a check to a family member for their medical or their education expenses, that would be considered a gift.
6. Know when inheritance is better than a gift.
If you give cash, the value is obvious and simple for the recipient. But if you give someone investments or real estate, they also receive your “cost basis” in the gift, which is simply the price you originally paid for it. That’s important because it determines the capital gain or loss that the recipient will have for future taxes.
For example, let’s say you bought your home decades ago for $100,000 and now it’s worth $500,000. If you give your home to your daughter and she sells it for $500,000, she’ll have to recognize the gains. That mean's she'll have $400,000 of capital gains tax to pay.
However, if your daughter inherits your home or investments after your death, she would receive a "step-up in basis," which can basically wipe out those capital gains. A step-up means the basis changes to the value at the time of your death.
Therefore, if your daughter inherits your home, her stepped-up basis changes drastically from $100,000 to $500,000. Therefore, selling it would likely result in zero taxes, which is a huge advantage! So be sure to consult with a CPA, if you’re considering gifting anything with significant value other than cash, so you and the recipient understand the potential future tax consequences.
To sum up, even though filing IRS Form 709 isn’t something to be afraid of, I know many people just don’t want the hassle. So, depending on how much Bernice wants to give her children, she could simply gift amounts under the current annual exclusion of $19,000 to each of them.
In addition, if one or all of Bernice’s children are married, she could also give $19,000 to each of her children' s spouses or partners and stay under the annual gift tax exclusion.
As I previously mentioned, unless you’ve already given away $15 million in your lifetime, you won’t have to pay any taxes on gifts. And the lucky recipient of your gift never has to report it or pay a gift tax, no matter how large it is. The burden is always on a gift giver to file Form 709 when needed.
Bernice, thanks again for your question! I hope this helps you feel more comfortable about giving away money that you genuinely don’t need for your own retirement. Being able to help family members sooner rather than later can be one of life’s greatest joys.
LISTEN ALSO: What tax will I owe on my home sale?
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
Money Girl is a Quick and Dirty Tips podcast, and we've got a great team! I want to thank Steve Riekeberg, our audio-engineer. Holly Hutchings is our director of podcasts. Morgan Christianson is our advertising operations specialist. Rebekah Sebastian is our marketing and publicity manager. Nathaniel Hoopes is our marketing contractor. And Maram Elnagheeb is our podcast associate.