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.
Welcome. We’re glad to serve you.
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.
↑ 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.
↑ 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.
↑ 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.
↑ 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.
↑ 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 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.
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.
