Financial Basics · Tax Concepts

Gift Tax

Definition

The federal gift tax applies to transfers of money or property to another person during your lifetime. The annual exclusion ($19,000 per recipient in 2026) and the lifetime exemption ($13.99M) mean most gifts are tax-free — but reporting may still be required.

Why it matters in retirement

Gifting during life can transfer wealth to the next generation efficiently, reduce a taxable estate, and help family members financially when they need it most. But it also sacrifices the step-up in basis and reduces your future Medicaid lookback protection.

Key Numbers — 2026

Annual exclusion (2026)
$19,000/recipient
Couple annual per recipient
$38,000
Lifetime exemption
$13.99M
529 superfunding
5 yrs of exclusion

Pros

  • Annual exclusion doesn't count against lifetime
  • Gifts to spouse unlimited (US citizen)
  • Direct tuition/medical payments exempt
  • 529 superfunding accelerates college saving

Cons

  • Gifts lose step-up in basis
  • Gifts within 5 years trigger Medicaid lookback
  • Reporting required above annual exclusion
  • Gift tax due only after lifetime exemption used

Common mistakes

  • Gifting appreciated stock instead of cash (recipient inherits your low basis)
  • Making large gifts within 5 years of potential Medicaid need
  • Failing to file Form 709 when required
  • Ignoring the direct tuition/medical payment exemption

Related

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