As with many areas of tax planning, individual circumstances matter. The information below is intended as a general overview of federal gift-tax rules and is not intended to provide individualized tax or legal advice. For questions about a particular gift or tax filing, consulting with a qualified tax professional or estate-planning attorney may be appropriate.
What Is the Gift Tax?
Generally, the federal gift tax applies to any transfer by gift of real or personal property, whether tangible or intangible, that you made directly or indirectly, in trust, or by any other means —in other words, when something is given away without receiving equivalent value in return.
That definition is broader than many people initially expect. A gift does not necessarily have to be cash. Depending on the circumstances, stocks, real estate, artwork, or other property may also be considered gifts.
Importantly, making a gift that exceeds the annual exclusion does not necessarily mean that gift tax will immediately be owed. The federal tax system provides both an annual exclusion and a larger lifetime basic exclusion amount. In many situations, a gift above the annual exclusion may result in a reporting requirement rather than an immediate out-of-pocket tax liability.
Understanding the 2026 Annual Gift Tax Exclusion
One of the most commonly discussed gift-tax provisions is the annual exclusion.
For example, an individual could generally give $19,000 to a child, another $19,000 to a grandchild, and $19,000 to another individual during the same year without those gifts using the donor’s lifetime basic exclusion amount, assuming the gifts otherwise qualify.
For married couples, the rules can be more flexible. When spouses elect to split qualifying gifts, they may generally be able to treat up to $38,000 per recipient as having been given by the couple in 2026. Each spouse has their own $19,000 annual exclusion, so they can collectively give $38,000 to the same recipient without necessarily relying on gift splitting. Gift splitting becomes relevant only when one spouse makes the entire $38,000 gift and they elect to treat it as made one-half by each spouse. Gift splitting has specific requirements, including gift-tax reporting considerations, so the rules should be reviewed based on the couple’s circumstances.
What if I Give More Than $19,000?
This is where a common misconception about the gift tax comes into play.
Suppose an individual gives a child $25,000 during 2026. The $25,000 gift is not automatically subject to a large tax simply because it exceeds the $19,000 annual exclusion.
Instead, assuming the gift is otherwise subject to the gift-tax rules, the amount above the annual exclusion—$6,000 in this example—would generally be a reportable taxable gift. The donor may need to file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. The reportable amount would generally be applied against the donor’s available federal basic exclusion amount.
The distinction is important: a gift can be reportable without necessarily resulting in gift tax being due at the time of the gift.
What Is the Federal Basic Exclusion Amount?
In addition to the annual exclusion, federal law provides a much larger basic exclusion amount that applies to both lifetime taxable gifts and transfers at death.
For 2026, the federal basic exclusion amount is $15 million per individual.
This means that, depending on a person’s circumstances and prior use of the exclusion, taxable gifts made during life may reduce the amount of the federal exclusion remaining for estate-tax purposes.
For example, if an individual makes a taxable gift above the annual exclusion, the amount may be reported on Form 709 and reduce the individual’s remaining available basic exclusion amount. That does not necessarily mean the donor writes a check for gift tax when the gift is made.
Because lifetime gifts and estate-tax planning can interact in complicated ways, substantial gifts should generally be considered in the context of the individual’s broader estate plan, assets, income needs, and other circumstances.
Certain Payments May Qualify for Additional Exclusions
Not every payment made on behalf of another person is treated the same way under the gift-tax rules.
Federal law provides specific exclusions for certain payments made directly for qualified tuition and medical expenses. For example, a payment made directly to a qualifying educational institution for another person’s tuition may qualify for the educational exclusion. Similarly, certain medical expenses paid directly to a medical provider may qualify for the medical exclusion.
The details matter. For example, the educational exclusion generally applies to qualifying tuition payments made directly to the educational institution; payments for books, supplies, room and board, and other expenses generally do not qualify for this particular exclusion.
Other transfers may receive different treatment under the gift-tax rules, including qualifying transfers to a spouse and certain transfers to political organizations.
Gifting During Life Versus at Death
When discussing estate planning, gifting is sometimes viewed primarily as something that happens after an individual’s death. But lifetime gifting can also be part of a broader financial or estate-planning conversation.
There can be practical and personal considerations to making a gift during life. A donor may have the opportunity to see how a gift is used, while the recipient may benefit from the assets at a time when they are useful to them.
At the same time, gifting during life requires consideration of the donor’s own financial needs. A gift that makes sense from an estate-planning perspective may not be appropriate if it reduces the donor’s ability to meet future spending needs, maintain an appropriate reserve, or respond to unexpected expenses.
For that reason, a lifetime gift is worth considering not only from the recipient’s perspective, but also in the context of the donor’s overall financial plan.
What Are You Giving?
The type of asset being gifted can be just as important as the dollar amount.
A gift might consist of:
- Cash
- Publicly traded securities
- Real estate
- Artwork or other property
- Other investment or personal assets
The tax considerations can differ depending on the asset being transferred.
Cash
Cash is relatively straightforward from an investment-tax perspective because there is no embedded capital gain associated with the cash itself.
Appreciated Securities
Gifting appreciated securities can require additional consideration.
For example, suppose an investor owns shares of a stock that were purchased many years ago for $30 per share and are now worth substantially more. If those shares are gifted, the recipient generally receives the donor’s adjusted basis in the property, subject to the applicable gift-tax basis rules. If the recipient later sells the shares, the recipient’s gain or loss calculation may therefore reflect the donor’s historical basis rather than the value of the shares on the date of the gift.
This is one reason the tax characteristics of the asset being gifted can be relevant when comparing different ways of making a gift.
In some circumstances, transferring appreciated securities may be considered as part of a broader tax-planning strategy. However, whether that approach is appropriate depends on factors such as the donor’s tax situation, the recipient’s tax situation, the amount of appreciation, and the intended use of the gift.
Real Estate and Other Property
Real estate, artwork, privately held interests, and other property can introduce additional considerations, including valuation, documentation, liquidity, ownership structure, and cost basis.
These types of gifts may warrant coordination with a qualified tax or legal professional before the transfer is completed.
What About Gifting From an IRA?
Retirement accounts require particular attention.
An IRA is generally not treated in the same way as a taxable investment account when it comes to making a gift. Taking money out of an IRA and then giving the cash to another individual is generally a distribution from the IRA to the account owner first. Depending on the account owner’s circumstances, that distribution may result in taxable income.
In other words, the gift-tax rules and the income-tax rules are separate considerations.
This is an important distinction when deciding which account or asset might be used to fund a significant gift. The tax consequences can vary substantially depending on the source of the funds and the individual’s circumstances.
A Few Questions to Consider Before Making a Larger Gift
For anyone considering a significant gift, it may be useful to step back and consider several questions:
- What am I giving? Cash, securities, real estate, artwork, or another asset may have different tax and planning considerations.
- Where are the funds coming from? The source—such as a taxable investment account, IRA, Roth IRA, or other asset—can affect the tax implications.
- What is the recipient likely to do with the gift? The purpose and intended use of the gift may influence which asset is most appropriate to transfer.
- What are the potential tax consequences? Both the donor’s and recipient’s tax situations may be relevant.
- How does the gift fit into my financial plan? A lifetime gift should be considered alongside cash-flow needs, investment objectives, reserves, and other long-term planning considerations.
- Is reporting required? Gifts above the annual exclusion, as well as certain other transfers, may require Form 709 or other tax reporting.
Gifting Can Be Part of a Larger Planning Conversation
Holiday gifting can be a simple way to provide financial support to family and friends, but larger gifts can involve more than simply determining an amount.
The type of asset, source of funds, tax basis, potential tax consequences, reporting requirements, and the donor’s own financial needs can all be relevant. For some families, gifting may also be one component of a broader estate or wealth-transfer strategy.
Because tax laws and individual circumstances vary, there is no single approach that is appropriate for everyone. Working with a financial advisor, tax professional, and, when appropriate, an estate-planning attorney can help coordinate the different considerations before a significant gift is made.
If you are considering a larger gift this holiday season, we would be happy to discuss how it may fit within your broader financial plan and help identify questions to raise with your tax or legal professionals.
Happy Holidays from Howe and Rusling!
Disclosures: This material is provided for informational and educational purposes only and should not be construed as individualized investment, tax, legal, or estate-planning advice. The information presented is general in nature and may not be appropriate for every individual or circumstance. Readers should consult with their financial advisor, tax professional, and/or legal counsel regarding their specific situation before making any financial, tax, or estate-planning decision. The discussion of gifting strategies, federal gift-tax rules, annual exclusions, basic exclusion amounts, reporting requirements, and related planning considerations is based on information believed to be reliable as of the date of publication; however, tax laws, regulations, and interpretations may change. Howe & Rusling does not provide tax or legal advice, and nothing herein should be relied upon as such. Any examples provided are hypothetical and are included solely to illustrate general concepts. Actual outcomes will vary based on individual facts and circumstances. References to potential planning benefits should be considered together with applicable risks, limitations, costs, tax consequences, and administrative requirements. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. No investment strategy, financial plan, or estate-planning approach can guarantee a particular outcome. Howe & Rusling, Inc. is an SEC-registered investment adviser. Registration as an investment adviser does not imply any particular level of skill or training. For additional information about Howe & Rusling, including its services, fees, and conflicts of interest, please review the firm’s Form ADV brochure, available upon request or through the SEC’s Investment Adviser Public Disclosure website.
