Lone Tree, Colorado
By Charles Trautman, EA · Reviewed October 15, 2026
Almost nobody pays gift tax.
Quite a few people are supposed to file a gift tax return.
The difference between those two sentences is where the trouble is.
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The federal gift tax is paid by the giver, never the recipient, and in 2026 it is paid by almost no one: the first $15 million a person gives away over a lifetime (and leaves at death) is covered by the unified exemption. But the return is a different matter. Any gift to one person of more than $19,000 in a year must be reported on Form 709, even though no tax is due, because the return is how the IRS keeps score against the $15 million. A parent who helps a child with a $60,000 down payment owes nothing and owes a return.
We prepare a good number of these. Most are simple. The complications are the ones people don’t recognize as gifts (adding a child to a deed, forgiving a loan, paying off someone’s credit card), the elections that have to be made on a timely return or not at all, and the consequence of not filing, which is that the three-year statute of limitations never starts. A $500,000 gift that was never reported is still open twenty years later, and the example below shows how that plays out.
| 2026 | Amount |
|---|---|
| Annual exclusion, per donor, per recipient | $19,000 |
| Annual exclusion for gifts to a non-citizen spouse | $194,000 |
| Lifetime exemption (unified with the estate tax), per person | $15,000,000 |
| Top gift and estate tax rate, above the exemption | 40% |
| Form 709 due date | April 15, 2027, for 2026 gifts; extended automatically by a Form 4868 income tax extension, or separately by Form 8892 |
The annual exclusion is per recipient and per giver. A married couple can give each of three children $38,000 a year, $114,000 total, with no return required if each spouse gives from their own funds or they elect to split. The lifetime exemption is what the annual exclusion doesn’t cover: a $100,000 gift to one child uses $19,000 of exclusion and $81,000 of the $15 million, reported on Form 709, with no tax. The 2025 act set the exemption at $15 million, indexed, and made it permanent, which ended the scheduled drop to about $7 million that had driven so much gifting in 2024 and 2025.
↑ Back to topA gift is any transfer where the giver gets back less than full value. The obvious ones are cash and checks. The ones that walk into the office unrecognized:
So the down payment was a gift, the deed was a gift, and the interest I didn’t charge was a gift. I was told family was priceless. The IRS seems to have arrived at a figure.
Intent does not matter. A gift can happen by accident. A parent who sells land to a child for $150,000 believing that is what it is worth, and learns on audit that it was worth $225,000, has made a $75,000 gift — donative intent is not an element (Reg. §25.2511-1(g)(1)). The only safe harbor is a transfer in the ordinary course of business, bona fide and at arm’s length, and family transactions get close scrutiny; a sale to a child needs a contemporaneous appraisal for that reason, not only to set the price. Nor does a promise that cannot be reduced to money protect a transfer: consideration has to be money or money’s worth. A transfer by a corporation, partnership or trust is treated as a gift by its shareholders, partners or beneficiaries, and if a donor dies before filing, the executor files the 709. The longer list of things that may be gifts: exercising or releasing a power of appointment, forgiving a debt, a below-market loan, assigning a life insurance policy, a divorce settlement outside the statutory window, retained-interest transfers in family entities (§§2701–2704), and digital assets — crypto, domain names, content files.
↑ Back to topThe present-interest rule. The annual exclusion covers only gifts of a present interest: the recipient can use the property now. A gift to a trust that pays out at age 25 is a future interest, gets no annual exclusion, and must be reported in full regardless of size. The Crummey withdrawal power is the standard fix, and the trustee’s notice letters to the beneficiaries are the evidence we need in the file.
Three refinements on the tuition and medical rules. “Medical” is anything deductible as medical care under §213 — including health insurance premiums and transportation, with no income floor — and nursing-home charges count only to the extent they are for medical care; custodial room and board for someone who is not there for medical reasons is an ordinary gift. If the patient is later reimbursed by insurance and keeps the money, the reimbursement becomes a gift in that year. A payment to a 529 plan or a Coverdell account is not a qualified transfer; it is an ordinary present-interest gift that uses the annual exclusion. And the school must have a regular faculty, curriculum and student body at a place where it operates; tuition only — no books, fees, room or board. Also outside the gift tax by statute: transfers to political organizations and to §501(c)(4), (5) and (6) organizations for their use.
↑ Back to topRare at a $15 million exemption, but it turns up in old unfiled years and in large gifts to people outside the family. If the recipient agrees to pay the gift tax, the donor has received something of value, so the taxable gift is reduced by the tax: at the 40% rate the net gift is the gross gift divided by 1.40 and the tax is 40% of the net. The income-tax side is the trap. The Supreme Court treats the donee’s payment of the donor’s gift tax as a sale to that extent, and the donor recognizes gain equal to the gift tax paid over the donor’s basis in the property. Property worth $75,000 with a $20,000 basis, given on condition the donee pays $30,000 of gift tax, is a $45,000 taxable gift and a $10,000 capital gain to the donor. A “net gift” clause in a deed or trust is the tell.
↑ Back to topFile Form 709 for a year in which you:
Each spouse files their own return; there is no joint Form 709. The return reports the current year’s gifts, totals all prior taxable gifts, computes a tentative tax on the cumulative total, and applies the unified credit. For almost all of our clients the bottom line is zero and the purpose is the running total. Keep every 709 ever filed; the executor will need them all to prepare the estate return, and the IRS will ask for them.
Two special cases. A donor who is neither a citizen nor a resident is taxed only on gifts of tangible property located in the United States — real estate, a car, jewelry or cash physically here; gifts of intangibles (stock, bonds, notes, LLC interests) are outside the tax entirely. There is no gift splitting and no lifetime exemption for such a donor (treaties aside), so a $500,000 gift of Lone Tree real estate by a Canadian parent is taxable at the graduated rates from the first dollar above the annual exclusion. And a gift to a spouse requires a return in three situations: the spouse is not a U.S. citizen and the year’s gifts exceed $194,000 (2026); the gift is a terminable interest that does not qualify for the marital deduction; or the donor is electing QTIP treatment for a lifetime trust for the spouse, which is done on a timely 709. A gift of jointly held property by a married couple is half from each spouse, each of whom files if their half is over the exclusion.
↑ Back to topGift splitting. A married couple can treat a gift made by one spouse as made half by each, doubling the exclusion to $38,000 per recipient (§2513). It requires both spouses to consent on a timely filed return, it applies to all gifts by either spouse that year (no picking and choosing), both must be U.S. citizens or residents and married at the time of the gift, and once made it is irrevocable after the due date. If the consenting spouse’s own gifts were under the exclusion and the split gifts are too, the consenting spouse may not need a separate return, but the signature on the donor’s return is still required. Splitting makes both spouses jointly liable for the gift tax. A simpler route when both spouses have funds is for each to give from their own account, no election needed.
The 529 five-year election. A contribution of up to $95,000 per beneficiary ($190,000 split) in one year can be elected to be treated as made ratably over five years, using five years of annual exclusions at once. The election is made on a timely Form 709 for the year of the contribution and cannot be made late. Any other gift to that beneficiary during the five years eats into the remaining exclusion. If the donor dies within the five years, the unused portion comes back into the estate.
GST allocation. Gifts to grandchildren (or to trusts that may benefit them) are also potential generation-skipping transfers, with a separate $15 million GST exemption. Direct gifts to a grandchild that qualify for the annual exclusion are “nontaxable gifts” with a zero inclusion ratio and need no allocation; gifts to a trust usually do, and the automatic allocation rules of §2632(c) can allocate exemption where the donor didn’t want it or fail to where he did. For any trust gift, the election in or out of automatic allocation is a Schedule D item that has to be right the first time.
The fine print on splitting, because it is where returns go wrong. Consent can be given on the first return filed by either spouse for the year, even a late one — but not after either spouse has already filed a return for that year, and not after a notice of deficiency has been mailed; an amended return cannot add it. The couple must be married at the time of the gift (a February gift cannot be split with a September spouse), both must be citizens or residents, and a divorce later in the year is fine if neither remarries that year. Splitting is not available for gifts to the spouse or where the spouse holds a general power over the gift. Each spouse uses their own exclusion and their own exemption against half, and each becomes the generation-skipping “transferor” of half. Liability becomes joint and several for the whole year’s tax. The consenting spouse need not file at all if the donor spouse’s gifts were present interests of no more than $38,000 to any one person and the consenting spouse made none, or made only gifts under $19,000 to other people. Colorado civil-union partners are not spouses for federal tax and cannot split.
↑ Back to topFor most tax returns, the IRS has three years from filing to assess additional tax. For a gift that was required to be reported and wasn’t, the three years never start. There is no statute of limitations. The gift can be assessed in any later year, including after the donor’s death, when the estate tax return is examined and the examiner asks about the transfers in the decedent’s bank records.
In 2016, Walter deeded a rental property worth $500,000 to his daughter. No one told him a return was required; no tax would have been due anyway, because the gift was well under his lifetime exemption. He never filed a Form 709. Walter dies in 2032 with a $9 million estate.
What should have happened in 2016: Form 709 reporting a $486,000 taxable gift ($500,000 less the $14,000 exclusion for that year), zero tax, $486,000 of exemption used. The statute would have run in April 2020. The estate return in 2032 would list the $486,000 as an adjusted taxable gift, reducing the available exemption by that amount, exactly as the law intends.
What happens instead: the executor files the estate return. The examiner, reviewing the decedent’s records and the county deed index, finds the 2016 transfer. Because no return was ever filed, the 2016 gift tax year is open. The IRS can now (1) assess the gift tax for 2016 (zero, since exemption covered it, but the exemption used is now fixed by the IRS’s determination of value, not Walter’s); (2) revalue the gift at whatever it decides the property was worth in 2016, because without an adequately disclosed return, the value is not fixed and §2001(f) doesn’t protect the estate; (3) assess the failure-to-file penalty under §6651 if any gift tax results, and (4) include the correctly valued gift in the estate tax computation. If the examiner’s appraiser says $650,000, the estate’s exemption is reduced by $636,000 rather than $486,000, and at a 40% marginal estate tax rate the difference costs the heirs about $60,000, plus the professional fees to fight a 2016 valuation in 2033 with no contemporaneous appraisal.
The fix while Walter is alive: file the 2016 Form 709 now, late, with a date-of-gift appraisal and adequate disclosure. No tax, no penalty (penalties are a percentage of tax due, and there is none), and the three-year statute starts the day it is filed. By 2032 the value is fixed and the question is closed. This is the single most useful thing a late gift tax return does: it costs nothing and it ends the exposure.
Two things make the problem worse. If the gift was to a trust or involved a discounted interest, an unreported transfer is also a GST problem with its own open statute. And a donor who failed to report one year’s gift will often have failed in several years; each is open separately. Chief Counsel Advice 201614036 confirms that the open statute applies to the year of the omitted gift, not to later years whose only error is a wrong prior-gift total; that limits the damage but doesn’t close the original year.
Who else is on the hook. If the donor does not pay, each donee is personally liable for the donor’s entire gift tax for that year, up to the value of what they received, and the tax is a lien on the gifted property for ten years; the IRS gets an extra year after the donor’s statute closes to assess the donee. An executor is personally liable for a decedent’s unpaid gift tax. For the prior-period schedule: earlier gifts enter at their true value, not the reported one, unless the value has become final (statute expired after adequate disclosure, or fixed by a court or an uncontested IRS determination); each prior year is reduced by the exclusion in effect then ($14,000 for 2013–2017, $15,000 for 2018–2021); and use of the unified credit is mandatory, so no one can pay gift tax to “save” exemption for later.
↑ Back to topFiling a return isn’t enough; the gift must be adequately disclosed for the statute to run and the value to be fixed. The regulation requires: a description of the property and any consideration received; the identity of and relationship between the donor and donee; for a trust, the trust’s EIN and a copy of the instrument (or a description of its terms); a detailed description of the method used to value the property, including financial data, restrictions considered, and any discounts claimed, or a qualified appraisal meeting the regulation’s standards; and a statement describing any position taken contrary to a regulation or ruling. For cash and publicly traded securities, a description with dates and values suffices. For real estate, closely held business interests, and anything discounted, get the appraisal at the time of the gift and attach it. A return that says “50% of Smith Family LLC, $400,000” with nothing more has not started the clock.
Once adequately disclosed and the three years have passed, the value is final for gift tax and, under §2001(f), for the later estate tax computation too. That finality is what the client is buying with the appraisal fee.
↑ Back to topA gift of appreciated property gives the recipient the donor’s basis. The same property inherited gets a basis equal to its value at death. A parent who gives a child the $68,000 house now worth $740,000 has given the child a $672,000 capital gain; a parent who leaves it at death has given a $740,000 house with no gain. With the estate exemption at $15 million, almost none of our clients will owe estate tax, which means the step-up is worth more than the exemption for appreciated assets, and lifetime gifts of appreciated property are usually the wrong tool. Give cash; give assets with high basis; give appreciated assets only when the recipient is in the 0% capital gains bracket and will sell, or when the asset is expected to appreciate so much that removing the growth from the estate matters. Our page on inherited property has the full comparison, and the beneficiary deed that avoids probate without the basis cost.
One more basis rule for gift tax returns: if gift tax is actually paid (rare now), the recipient’s basis increases by the portion of the tax attributable to the appreciation (§1015(d)(6)). And a gift of property that has declined in value gives the recipient a dual basis: the donor’s basis for gain, fair market value at the gift for loss, and no loss at all if the sale lands between them.
↑ Back to topThe annual exclusion requires a present interest, and nobody wants to hand a seven-year-old $19,000 outright; a trust that holds the money until 25 is a future interest with no exclusion at all. There are four standard ways around it.
Common to all four: the gift is still a gift to the child; the donor cannot keep the power to decide later who gets it; a minor can disclaim until nine months after turning 21; and Colorado has no gift tax, so nothing is filed with the state.
↑ Back to topColorado has no gift tax, no estate tax and no inheritance tax. There is no Colorado gift tax return and nothing to file with the state when a gift is made. Colorado income tax follows the federal basis rules, so the carryover-basis consequence of a lifetime gift reaches the Colorado return when the recipient sells. A gift of Colorado real estate is recorded with the county clerk by deed, and that deed index is where an examiner finds the unreported gift twenty years later; a documentary fee is paid at recording, which is a transfer fee, not a tax on the gift.
↑ Back to topNo. The first $19,000 is covered by the annual exclusion and the other $31,000 uses part of your $15 million lifetime exemption. You do owe a Form 709 for the year, due April 15, reporting the gift. No tax, but the return is required.
If each of you gives from your own funds (separate checks, or a check from a joint account with a clear intention that each gave half), no return is required at $19,000 each. If one spouse gives $38,000 from separately owned funds, you file and elect to split. In practice, two checks avoids the return.
No, and he should file now. A late Form 709 with a date-of-gift appraisal fixes the value and starts the three-year statute; without it the gift stays open forever and can be revalued when his estate is examined. No tax or penalty is due if the gift was within his exemption, which it almost certainly was.
Not if you pay the school directly. Tuition paid directly to the institution is not a gift at any amount. If you give the money to your grandson or pay his room and board, that is a gift, and anything over $19,000 in a year requires a return.
From my course notes and the final exam — the rules in one line each, restated for 2026.
For the Tax Shop desk · forms, code sections, and the things that get missed
If you gave anyone more than $19,000 last year, or put a child on a deed, or forgave a loan, bring it in with the rest of your tax papers and we will file the Form 709 alongside your return. It is usually a short form with a zero on the bottom line, and it is the form that closes the question for good. If you made a large gift in a prior year and never filed, bring that too; a late return with an appraisal costs little and ends an exposure that otherwise outlives you. And before you give appreciated property to anyone, call: with the estate exemption where it is, the step-up at death is usually worth more than the gift.
Call 303-734-1040 or stop by the office in Lone Tree. We’ve been reading the footnotes for Douglas County and the Denver area since 1969.
Figures reflect the 2026 tax year as currently published and are rounded for readability. Items marked (verify) are to be confirmed against IRS or Colorado DOR sources before the figures freeze in December. Last updated October 15, 2026.