Who Pays Gift Tax?
Who Pays Gift Tax?
If you give money or property to someone, who pays the gift tax?
Usually, the person making the gift pays the tax, not the person receiving it.
But don't panic. Most people who make gifts will never actually pay federal gift tax.
What Is a Gift?
A gift can be:
- Cash
- Real estate
- Stocks or investments
- Business interests
- Other valuable property
We aren't talking about birthday presents. We are talking about larger transfers of money or property.
A gift generally occurs when you transfer something of value to another person and do not receive full value in return.
Does the Person Receiving the Gift Pay Gift Tax?
Usually, no.
Federal gift tax is generally the responsibility of the person making the gift.
If you give your child $25,000, for example, your child generally does not owe federal gift tax simply because the money was received.
That does not mean there can never be other tax consequences.
This is particularly important when you give property instead of cash. Real estate, stocks and other investments may have income tax consequences later if the person receiving the property sells it.
How Much Can You Give?
In 2026, you can generally give up to $19,000 per person each year without using any of your lifetime federal gift and estate tax exemption.
If you have three children, you can give each child $19,000.
That's $57,000 in gifts.
If you are married, you and your spouse may generally give a total of $38,000 to each person.
The annual exclusion applies to each recipient.
That means you may be able to give $19,000 to your son, $19,000 to your daughter and $19,000 to your grandchild during the same year.
Do You Have to Report a $19,000 Gift in 2026?
Generally, a gift that qualifies for the annual exclusion and does not exceed $19,000 to one person during 2026 does not require a federal gift tax return solely because of that gift.
But there are exceptions.
The type of gift matters. Certain gifts of future interests, for example, do not qualify for the annual exclusion.
If you are unsure whether a gift needs to be reported, ask your CPA or other qualified tax professional before assuming that no return is required.
What If You Give More?
Here's where people get confused.
Giving someone more than $19,000 does not necessarily mean you owe gift tax.
You may simply have to file a federal gift tax return, Form 709, and use part of your lifetime exemption.
For 2026, that federal exemption is $15 million per person.
For example, suppose you give your adult child $50,000 in 2026.
The gift exceeds the $19,000 annual exclusion.
That does not automatically mean you owe gift tax on the remaining amount. You may be required to report the gift and have the amount above the annual exclusion count against your available lifetime exemption.
So, for most families, making a gift does not mean writing a check to the IRS.
But filing requirements still matter.
Are There Gifts That Do Not Count Toward the $19,000 Annual Exclusion?
Some payments may qualify for separate federal gift tax exclusions.
Two important examples involve tuition and medical expenses.
If you pay qualifying tuition directly to an educational institution for someone else, that payment may qualify for the educational exclusion.
The word directly matters.
Giving your grandchild money and telling her to use it for tuition is not necessarily the same as paying qualifying tuition directly to the school.
The same general concept applies to qualifying medical expenses. Payments made directly to the medical provider on behalf of another person may qualify for the medical exclusion.
These rules have requirements, so do not assume that every payment for education or healthcare qualifies.
What Happens If You Give Stock, Real Estate or Other Appreciated Property?
This is where gifting can become more complicated.
Suppose you purchased stock many years ago for $20,000 and it is now worth $100,000.
Giving the stock to your child may sound simple.
But the tax basis of gifted property can matter when your child eventually sells it.
Generally, the recipient of gifted property may receive the donor's basis for purposes of determining a future gain, although special rules can apply.
That means a gift that saves one kind of tax may create another tax consideration later.
Real estate can raise similar issues.
Before transferring appreciated property, look at the entire picture.
What did you pay for the property?
What is it worth now?
Will the recipient probably sell it?
How does the gift affect your estate plan?
A gift should not be made in a vacuum.
How Does Gifting Fit Into Your Arizona Estate Plan?
Gift tax is a federal tax issue, but gifting can still be an important part of an Arizona estate plan.
Your estate plan is about more than what happens when you die.
It is also about what you own, how you own it and what you want to accomplish with your property during your lifetime.
Maybe you want to help a child purchase a home.
Maybe you want to help grandchildren with education.
Maybe you are considering transferring real estate or investments to family members.
Maybe you simply want to start giving some of your estate to the people you love while you are here to see them enjoy it.
Those can all be reasonable goals.
But before making a significant gift, consider how that gift fits with the rest of your plan.
Do you still have enough assets for your own needs?
Does the gift change how your estate will eventually be divided among your beneficiaries?
Are you giving away an asset that has appreciated substantially?
Does your Trust or other estate planning document need to be reviewed?
These questions can be just as important as the gift tax itself.
Before You Make a Large Gift
Large gifts can have tax and estate planning consequences.
Before giving away a large amount of money, investments, or real estate, get advice.
Talk with your estate planning attorney and your tax advisor so you understand both sides of the decision.
A little planning before you make the gift can prevent a big problem later.
Frequently Asked Questions About Gift Tax
Who Usually Pays Federal Gift Tax?
The person making the gift is generally responsible for federal gift tax, not the person receiving the gift.
How Much Can I Give Someone in 2026 Without Using My Lifetime Exemption?
The federal annual gift tax exclusion for 2026 is generally $19,000 per recipient. Married couples may generally be able to give a combined $38,000 per recipient, depending on how the gifts are made and applicable reporting requirements.
If I Give Someone More Than $19,000, Do I Automatically Owe Gift Tax?
No. Giving more than the annual exclusion does not automatically create an immediate gift tax bill. You may need to file Form 709, and the amount above the annual exclusion may reduce your available lifetime federal gift and estate tax exemption.
Can I Pay Someone's Tuition Without Using the $19,000 Annual Exclusion?
Qualifying tuition payments made directly to an educational institution may qualify for a separate federal gift tax exclusion. The payment generally must be made directly to the educational institution and must be for qualifying tuition.
Can I Pay Someone's Medical Bills Without Using the Annual Exclusion?
Certain qualifying medical expenses paid directly to the medical provider may qualify for a separate federal gift tax exclusion.
Does the Person Receiving a Gift Have to Report It as Income?
Receiving a gift generally does not make the value of the gift federal taxable income to the recipient simply because it was received as a gift. However, property received as a gift can have future income tax consequences, particularly when appreciated property is later sold.
Should I Talk to an Estate Planning Attorney Before Making a Large Gift?
If the gift involves substantial cash, real estate, investments, business interests or other significant assets, it is wise to consider how the transfer affects your overall estate plan. Your tax advisor should also be consulted about federal tax reporting and tax consequences.
About the Author
Ilene L. McCauley, Esq. is a Scottsdale, Arizona estate planning, probate, and tax attorney who has practiced law in Arizona since 1982. She helps individuals and families throughout Arizona address estate planning, incapacity, probate, trust administration, and related family planning concerns. Ilene is a Certified Specialist in Taxation recognized by the Arizona Board of Legal Specialization.
Disclaimer
Ilene L. McCauley is licensed to practice law in the State of Arizona. Ilene L. McCauley, Ltd. provides legal services for clients in the State of Arizona. This article is general and educational in nature and should not be construed as legal, tax, or medical advice. Reading this article or using this website does not create an attorney client relationship. Federal and state laws and regulations are complex and subject to change.
Individuals and families should consult qualified Arizona legal and tax professionals regarding their own circumstances.