A client helps an adult child buy a home, pays a grandchild’s tuition, or transfers appreciated stock to a family member. Each transaction may start with a simple question: Will there be taxes on this gift?
For tax professionals, the answer involves more than the amount transferred. The recipient, type of property, payment method, and client’s prior gifts can all affect the analysis. The 2026 increase in the federal gift and estate tax exclusion adds another reason to revisit those conversations.
What changed for gift taxes in 2026
Public Law 119-21, enacted July 4, 2025, increased the federal gift and estate tax basic exclusion amount to $15 million per individual for 2026, up from $13.99 million in 2025. The law replaced the previously scheduled 2026 reduction and provides inflation adjustments beginning in 2027. [1, 2]
That amount is shared across taxable lifetime gifts and transfers at death. It is not a fresh $15 million allowance each year. Prior taxable gifts matter when determining how much exclusion remains available. [3]
The annual gift tax exclusion remains $19,000 per donor, per recipient for 2026. For qualifying gifts to a spouse who is not a U.S. citizen, the separate annual exclusion increases to $194,000. [2]
The annual exclusion is not a cap on giving
Clients can give more than $19,000 to someone in 2026. Crossing that threshold generally creates a reporting requirement and a taxable gift, rather than an immediate tax bill. Available exclusion may cover the resulting gift tax. The donor generally bears responsibility for gift tax. [3]
For example, assume a client gives an adult child $50,000 cash in 2026, makes no other gifts to that child, and claims no other exclusion or deduction for the transfer. After the $19,000 annual exclusion, the taxable gift is $31,000. A gift tax return is generally required, but sufficient remaining exclusion can mean no gift tax is payable. [3]
The annual exclusion applies to each recipient and generally requires a present interest—an immediate right to use or enjoy the property. Gifts of future interests do not qualify. [2, 4]
Marriage does not eliminate gift tax reporting
Two spouses can each give $19,000 to the same recipient in 2026, for a combined $38,000 in qualifying gifts. When one spouse makes the gift and the couple elects gift splitting, Form 709 reporting and spousal consent rules apply. There is no joint Form 709; review the filing exceptions for the consenting spouse. [3, 4]
How tuition and medical payments are made matters
Qualifying tuition paid directly to an eligible educational institution and qualifying medical expenses paid directly to the provider can fall outside gift tax without using the annual exclusion. Tuition does not include books, supplies, or room and board. Insurance-reimbursed medical expenses do not qualify for the medical exclusion. [4]
Giving a relative cash to pay those bills does not qualify for these direct-payment exclusions. Ask clients how they intend to transfer the money before they make the payment. [4]
A gift of appreciated property brings basis into the conversation
Recipients generally exclude genuine gifts from federal gross income, but income subsequently generated by gifted property can be taxable. Personal gifts to family members generally do not create an income tax deduction for the donor. [3, 5]
For appreciated property, the recipient generally takes the donor’s adjusted basis, subject to applicable adjustments. A gift does not automatically reset basis to fair market value. For property worth less than its adjusted basis, different basis rules can apply when calculating gain and loss. [6]
For example, stock with a $10,000 adjusted basis and a $40,000 gift-date value generally carries that $10,000 basis to the recipient, assuming no basis adjustment applies. A later $40,000 sale would produce a $30,000 gain before selling costs. [6]
Before clients transfer appreciated assets, compare the intended gift with their broader estate plan. Collect the donor’s basis records as well as support for the gift-date value so the recipient has the information needed for a future sale.
Form 709 deserves its own deadline
For gifts made during 2026, Form 709 is generally due April 15, 2027. A filing extension does not extend the time to pay gift tax. [4]
The IRS now accepts Form 709 through Modernized e-File. Confirm support with your software provider for the applicable tax year. [1]
Use year-end conversations to identify gifts that may otherwise surface only during return preparation.
A short review can help establish what happened and what records are still needed.
- Identify the donor, recipient, transfer date, and ownership of the funds or property.
- Add up transfers to each recipient across the calendar year rather than reviewing each gift separately.
- Request prior Forms 709 and records of earlier taxable gifts.
- Confirm whether tuition and medical payments went directly to the institution or provider.
- For property gifts, collect basis records and valuation support; coordinate complex transfers with estate planning counsel.
The larger 2026 exclusion changes the planning conversation, but clients still benefit from reviewing a transfer before completing it. That discussion gives you time to evaluate reporting, document the transaction, and explain the consequences for both sides.
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Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice
Frequently Asked Questions About Gift Taxes
What is the annual gift tax exclusion for 2026?
The annual gift tax exclusion is $19,000 per donor, per recipient. It generally applies to gifts of present interests, meaning the recipient can immediately use or enjoy the property. A donor can make qualifying gifts to multiple recipients and apply the exclusion separately to each.
Does giving more than $19,000 automatically trigger gift tax?
No. A gift above the annual exclusion generally requires Form 709, but available lifetime exclusion may cover the tax. The federal gift and estate tax basic exclusion amount is $15 million per individual for 2026, reduced by prior taxable gifts.
Can a married couple give $38,000 to one person in 2026?
Yes. Each spouse can give $19,000 in qualifying gifts to the same recipient. If one spouse makes the gift and the couple elects gift splitting, Form 709 and spousal consent requirements apply. Spouses cannot file a joint gift tax return.
Does the person receiving a gift owe income tax?
A genuine gift generally is not included in the recipient’s federal gross income. However, income the gifted property later produces, such as interest or dividends, can be taxable. Selling gifted property may also generate a taxable gain.
Are tuition and medical payments subject to gift tax?
Qualifying tuition paid directly to an eligible educational institution and qualifying medical expenses paid directly to the provider generally fall outside gift tax. Giving someone cash to pay those bills does not qualify for these exclusions. Books, supplies, and room and board do not qualify as tuition, and insurance-reimbursed medical expenses are excluded from the medical exception.
Does gifted property receive a new basis equal to its market value?
Generally, no. Appreciated property typically carries over the donor’s adjusted basis, subject to applicable adjustments. Property worth less than the donor’s adjusted basis has separate rules for determining gain and loss. Keep both basis records and support for the gift-date fair market value.
When is Form 709 due for gifts made in 2026?
Form 709 is generally due April 15, 2027. An extension to file does not extend the deadline to pay any gift tax due. A return may be required even when no tax is payable, including for certain future-interest gifts and gift-splitting elections.
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Sources
[1] IRS, What’s new—Estate and gift tax, sections Working Families Tax Cuts and Modernized e-File; Public Law 119-21; IRC § 2010(c)(3).
https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
[2] IRS, Revenue Procedure 2025-32, §§ 2.14 and 4.42; IRC §§ 2010(c)(3), 2503(b), and 2523(i).
https://www.irs.gov/irb/2025-45_IRB#REV-PROC-2025-32
[3] IRS, Frequently asked questions on gift taxes, sections Who pays the gift tax, How many annual exclusions are available, What other information do I need to include with the return, and May I deduct gifts on my income tax return; webpage, no publication number. See also IRC §§ 2503 and 2505.
[4] IRS, Instructions for Form 709 (2025), sections Who Must File, Annual Exclusion, Part III—Spouse’s Consent on Gifts to Third Parties, Educational exclusion, Medical exclusion, When To File, and Extension of Time To File. Cited for continuing rules; use final 2026 instructions when preparing 2026 returns.
https://www.irs.gov/instructions/i709
[5] IRS, Publication 525 (2025), Taxable and Nontaxable Income, section Gifts and inheritances; IRC § 102.
https://www.irs.gov/publications/p525
[6] IRS, Publication 551 (December 2025), Basis of Assets, section Property Received as a Gift; IRC § 1015.
