A reader requested a better understanding of the tax impacts of gifts. This is a question we sometimes field in the office, so it is on the minds of many folks. We will cover several topics within gifts.

Gifts are generally tax-neutral. Tax is only imposed when the lifetime gift, estate and generation-skipping transfer tax exemption is exhausted ($15 million per person for 2026). Many people do not exhaust the exemption during their lifetimes. However, that does not mean a Gift Tax Return (IRS Form 709) is not required.

Gifts under $19,000 (2025) per donor, per donee, per year do not require any reporting. However, for gifts in excess of $19,000 or when spouses split the gift, a Gift Tax Return (IRS Form 709) is required to be filed, even if there is no tax due. The reporting creates a record toward the lifetime exemption. The due date for filing is April 15th of the year following the gift.

An example of splitting gifts is an asset worth $36,000. The gift is given by a married couple to one person, such as a child. Each spouse has an exclusion of $19,000. If the gift is made by one spouse, a Gift Tax Return is necessary to report the excess $19,000 over the annual exclusion. If both spouses make the gift, they can both use their own annual exclusion amounts. However, splitting is an election that must be reported on a Gift Tax Return.

Deposits to a 529 Plan for another person are also gifts that count toward the annual exclusion.

The donor’s basis remains with the gift. This is simple for cash because basis and fair market value are equal. For property and investments, documentation of the original cost basis should be provided to the recipient. An appraisal determining the value of the gift may also be required. Recipients of gifts will not benefit from a step-up in basis upon the donor’s death. Thus, gifting strategies should be carried out with advance planning.

Why make gifts? For a highly appreciated asset, such as stock, the child may enjoy a lower tax bracket, resulting in tax savings. However, the parent no longer owns the asset and has transferred value to the child.

Adding children to a parent’s bank accounts or property could also result in a gift. This will be a topic for a future post.