Gift and Estate Taxes

One system for gifts and estates

Federal gift and estate taxes share a single lifetime exemption. Taxable gifts you make while living reduce the amount available at death. Above the exemption, the tax rate is 40%.

The Tax Cuts and Jobs Act exemption was scheduled to drop by roughly half in 2026. The 2025 tax law instead raised it to $15 million and made it permanent, with inflation adjustments after 2026.

The annual exclusion

You can give up to $19,000 to any number of people each year with no paperwork and no effect on your lifetime exemption. A married couple can give $38,000 to each person. Gifts that don’t count against the exclusion at all:

• Tuition paid directly to a school
• Medical expenses paid directly to the provider
• Gifts to your U.S.-citizen spouse
• Gifts to qualified charities

A 529 plan contribution can be “front-loaded” with five years of annual exclusions at once ($95,000 per donor in 2026) by election on Form 709.

When a gift tax return is required

File Form 709 by April 15 of the following year if you gave any one person more than $19,000 (other than the exceptions above), if you and your spouse elect to split gifts, or if you front-load a 529 plan. The return usually shows no tax due; it keeps track of how much lifetime exemption you’ve used.

Estate tax and portability

An estate tax return (Form 706) is required only when the gross estate plus lifetime taxable gifts exceeds the exemption. But when the first spouse dies, it’s often worth filing Form 706 anyway to elect portability, which lets the surviving spouse use the deceased spouse’s unused exemption. Small estates can make this election up to five years after death under a simplified IRS procedure.

Basis: the income tax side

For most families, basis matters more than gift or estate tax:

• Gifted property keeps your basis. If you give your child stock you bought for $10,000 that’s now worth $100,000, your child owes tax on $90,000 of gain when they sell.
• Inherited property generally gets a basis equal to its fair market value at death, the “step-up.” If your child inherits the same stock, their basis is $100,000 and a prompt sale produces little or no tax.

That’s why giving away highly appreciated property, such as a family home, farm, or rental, during life can cost the family more income tax than leaving it at death. Retirement accounts don’t get a step-up; heirs pay income tax as they withdraw.

Colorado

Colorado has no estate tax, inheritance tax, or gift tax. If you own property in another state, that state’s rules may apply to it.

Work with your attorney

Wills, trusts, and beneficiary designations are legal documents; we coordinate with your estate planning attorney on the tax side, including gift tax returns, estate and trust income tax returns, and basis records for heirs.

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