Gift Tax: Giving or Lending Money to Family Without Tax Trouble
Figures checked October 27, 2026 against primary sources
Parents help adult children with a house, a wedding or a rough patch. Adult children help aging parents. Most of these gifts never touch the federal gift tax, and almost none of them end in a tax bill. What catches families out is the paperwork: a return that was due and never filed, a "loan" with no interest and no note, or a down-payment gift the mortgage lender cannot document. This guide covers the 2026 numbers, when a return is due, and how to lend money to family so it stays a loan.
The Short Answer
- The giver owes any gift tax, not the person who receives the gift. The person receiving it generally does not count it as income.
- In 2026 you can give up to $19,000 to each person with no return to file. A married couple can give $38,000 to each person. The amount was also $19,000 in 2025.
- Going over $19,000 to one person means filing Form 709, not paying tax. The excess is subtracted from your lifetime exclusion of $15,000,000 for 2026. Tax is due only after that is used up.
- Tuition paid straight to the school and medical bills paid straight to the provider are not gifts at all, in any amount.
- A family loan needs a written note, a real repayment schedule and, above certain sizes, interest at least equal to the IRS Applicable Federal Rate. Otherwise the IRS can treat part or all of it as a gift.
Who Pays the Gift Tax
The person giving the gift. The IRS says the donor is generally responsible for paying the gift tax, and the recipient pays only under a special arrangement or if the donor fails to pay. Under IRS Publication 525, property you receive as a gift is generally not income, so a child who receives $50,000 from a parent owes no income tax on it. Income the gift later earns, such as interest or dividends, is taxable to the child.
Two related points people often get wrong:
- The giver gets no income tax deduction for a gift to a person. Only gifts to qualifying charities are deductible.
- Gifted property keeps the giver's cost basis. If a parent gives a child stock bought at $10 a share and the child sells it at $100, the child pays capital gains tax on $90 a share. Property inherited at death is treated differently: its basis is generally reset to the value on the date of death. That difference is a reason to think twice before gifting assets with large built-in gains. See what heirs pay on an inheritance.
The Annual Exclusion for 2026
The annual exclusion is the amount you can give each person every calendar year without it counting as a taxable gift. It applies per recipient, so you can give the full amount to as many people as you like.
| Year | Per recipient, one giver | Per recipient, married couple | Gifts to a spouse who is not a US citizen |
|---|---|---|---|
| 2026 | $19,000 | $38,000 | $194,000 |
| 2025 | $19,000 | $38,000 | $190,000 |
| 2024 | $18,000 | $36,000 | not shown |
Sources: Rev. Proc. 2025-32 section 4.42 for 2026, Rev. Proc. 2024-40 for 2025, and the IRS gift tax FAQ table for the per-couple amounts.
The exclusion only covers gifts of a present interest, meaning the recipient can use the money or property now. A gift the person can only enjoy later, such as most gifts into a trust that delays access, is a future interest. It gets no annual exclusion and always requires Form 709, however small.
The exclusion resets on January 1. Giving $19,000 in late December and another $19,000 in early January uses two years' exclusions, which is why searches for "gift tax" peak every December.
The $15 Million Lifetime Exclusion
Gifts above the annual exclusion are not taxed right away. They are subtracted from a lifetime amount, called the basic exclusion amount, that covers both gifts during life and your estate at death.
- 2026: $15,000,000 per person. Section 70106 of the One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) set this amount for 2026, as confirmed in Rev. Proc. 2025-32 section 2.14 and on the IRS What's New: Estate and Gift Tax page. It will be adjusted for inflation again starting in 2027.
- 2025: $13,990,000, per the Form 709 instructions.
- The rate above the exclusion tops out at 40%.
The rise from 2025 to 2026 came from new law, not the usual yearly inflation adjustment.
Because gifts and estates share one exclusion, every dollar of lifetime exclusion you use on gifts is a dollar less that can shelter your estate. For a family far below $15 million, that makes no practical difference. For larger estates, see our estate tax guide, which covers the rates, portability between spouses and state estate taxes.
Example: Parents Giving $50,000
Hypothetical example for gifts made in 2026, assuming the givers have made no earlier taxable gifts and the money is not community property.
| Situation | Over the $19,000 exclusion | Form 709? | Lifetime exclusion used | Gift tax due |
|---|---|---|---|---|
| One parent gives a child $50,000 | $31,000 | Yes, that parent | $31,000 (leaves $14,969,000) | $0 |
| One parent gives a child $50,000 and the couple elects gift splitting ($25,000 each) | $6,000 per parent | Yes, both parents | $6,000 each | $0 |
| Each parent gives $12,500 to the child and $12,500 to the child's spouse | $0 | No | $0 | $0 |
| Parents pay $50,000 of tuition directly to the child's university | Not a gift | No | $0 | $0 |
In every case the tax due is zero. The difference is whether a return has to be filed and how much of the $15 million is used. Spreading the same $50,000 across four annual exclusions (two parents, two recipients) or paying tuition directly avoids the return entirely.
When You Must File Form 709
Form 709 is the federal gift tax return. Per the Instructions for Form 709, a US citizen or resident must file it, whether or not any tax is due, if they:
- gave one person (other than a spouse) more than the annual exclusion in the year;
- made any gift of a future interest, even a small one;
- want to split gifts with a spouse, whatever the amount; or
- make a 529 plan five-year election (see below).
Married couples cannot file a joint gift tax return. Each spouse files their own. Gifts of community property count as made half by each spouse, and both must file if the halves are over the limit.
Deadline: April 15 of the year after the gift. For gifts made in 2026 that is April 15, 2027. Extending your income tax return also extends Form 709. If you are not extending your income tax return, Form 8892 gives an automatic six-month extension to file. Neither extends the time to pay any tax that is due. Form 709 can now be filed electronically.
Not filing when you should does not usually cost tax for someone far below the lifetime limit, but it leaves no record of how much exclusion was used, which your executor will need later.
Gift Splitting for Married Couples
Gift splitting lets a married couple treat a gift made by one spouse as made half by each. That doubles the annual exclusion for that gift to $38,000 in 2026, even if all the money came from one spouse's account.
The rules, from the Form 709 instructions:
- You were married to each other at the time of the gift, and if divorced or widowed afterward, you did not remarry during the rest of the year.
- Neither spouse was a nonresident who is not a US citizen.
- Both spouses consent, and the consent covers every gift either of you made to third parties that calendar year. You cannot split some gifts and not others.
- Once you split, each spouse is liable for the whole gift tax of the other for that year.
- Splitting requires a Form 709. Usually both spouses file. Only the giving spouse files, with the other signing consent on that return, when no recipient got more than double the annual exclusion ($38,000), all gifts were present interests, and the other spouse either made no gifts or gave only amounts within the exclusion to different people.
A simpler route for a couple with separate accounts: each spouse writes their own check for up to $19,000. No split and no return are needed.
Gifts That Do Not Count
Tuition paid directly to the school. Any amount, for anyone, related or not. It must go straight to a qualifying school and must be tuition. Books, supplies, room and board are not covered: paying those is a regular gift that can use the annual exclusion. Contributions to a 529 plan do not qualify for this tuition exclusion.
Medical costs paid directly to the provider. Doctor, hospital or care facility bills, and health insurance premiums paid for someone else, as long as you pay the provider and not the person. If the person's insurance later reimburses the bill, the reimbursed part becomes a regular gift.
Gifts to your spouse. No return is needed for gifts to a spouse who is a US citizen, except for certain gifts that end at a future date (terminable interests). For a spouse who is not a US citizen, the annual exclusion is $194,000 in 2026 ($190,000 in 2025).
Political organizations and qualifying charities. Gifts to a political organization for its use are not gifts for this tax. Gifts to qualifying charities are deductible, and if they are your only gifts and you gave your whole interest, no return is needed.
529 plans: the five-year election
A 529 contribution is a gift to the beneficiary, and it counts as a present interest, so the annual exclusion applies. Section 529(c)(2)(B) of the tax code also lets you spread a contribution above the annual exclusion evenly over five years. The 2025 Form 709 instructions put the maximum at $95,000 per beneficiary, five times the $19,000 exclusion. Since the 2026 exclusion is also $19,000, the same arithmetic gives $95,000 for 2026 (a married couple splitting gifts can do this twice). You make the election on Form 709 for the year of the contribution, and because the election uses that beneficiary's exclusion in each of the five years, other gifts to the same person in those years generally go on Form 709 and count against your lifetime exclusion. More on the accounts themselves in our 529 plan guide.
Gift or Loan? Lending Money to Family
Lending instead of giving keeps the money yours and avoids using any exclusion, but only if it really is a loan. The Form 709 instructions list forgiving a debt and making an interest-free or below-market loan among the transfers the gift tax can reach.
Things that make a family "loan" look like a gift:
- nothing in writing;
- no interest, or interest below the IRS minimum rate;
- no payment schedule, or payments nobody actually makes;
- the lender regularly forgives payments as they come due.
Forgiving payments is allowed. It is simply a gift of each amount forgiven, which can fall under the $19,000 annual exclusion if you plan it that way. What matters is that the paper and the payments match what really happens.
Applicable Federal Rates (AFR)
The Applicable Federal Rate is the minimum interest rate the IRS uses to decide whether a loan is "below market." The IRS publishes new rates every month in a revenue ruling, listed on its Applicable Federal Rates page. The rates follow US Treasury yields, so they move with the market.
Which rate applies depends on the loan's term (tax code section 1274(d)):
| Loan term | Rate that applies | October 2026 (Rev. Rul. 2026-19) | November 2026 (Rev. Rul. 2026-21) |
|---|---|---|---|
| 3 years or less | Short-term AFR | 4.25% | 4.67% |
| Over 3 and up to 9 years | Mid-term AFR | 4.61% | 5.08% |
| Over 9 years | Long-term AFR | 5.22% | 5.52% |
Rates shown are the annual-compounding column of Table 1 in Rev. Rul. 2026-19 and Rev. Rul. 2026-21. The rulings also give semiannual, quarterly and monthly versions; use the one that matches how often interest compounds on your note.
For a term loan (fixed repayment date), the rate in effect in the month the loan is made applies for the life of the loan. For a demand loan (repayable whenever the lender asks), the short-term rate is applied period by period, so the minimum moves with the market. Locking in a term loan at this month's rate is usually simpler for families.
Interest-Free Family Loans: The $10,000 and $100,000 Rules
Section 7872 of the tax code covers loans that charge less than the AFR. For a gift loan, the interest you did not charge (the "forgone interest") is treated as if you gave it to the borrower and the borrower paid it back to you as interest. So it can count as a gift from you and as interest income to you. A married couple counts as one lender for these limits. Two size thresholds soften this for family loans:
| Total outstanding loans between you and the borrower | What section 7872 does |
|---|---|
| $10,000 or less | The section does not apply, unless the money is used to buy or carry income-producing assets such as stocks or a rental. |
| Over $10,000 up to $100,000 | For income tax, the interest you are treated as receiving is capped at the borrower's net investment income for the year, and is zero if that income is $1,000 or less. This cap does not apply if avoiding tax was one of the main purposes of the low rate. The gift side still applies. |
| Over $100,000 | The full rules apply: forgone interest counts as a gift to the borrower and as interest income to you. |
Hypothetical illustration: parents lend a child $150,000 at 0% as a demand loan. At an AFR of about 4.5%, the forgone interest is roughly $6,750 a year. Each year that amount is treated as a gift to the child (well under the $19,000 annual exclusion) and as interest income the parents report, even though no cash changed hands. Charging the AFR instead means the interest the parents actually receive is taxable income to them, but the loan is clean.
For a term gift loan, the gift tax side works differently: the gift is measured once, on the day the loan is made, as the amount lent minus the present value of the payments due. On a large, long interest-free loan that one-time gift can be bigger than a year's annual exclusion, which would require Form 709.
Family Loan Agreement Checklist
A family loan agreement is a promissory note. It does not need to be long, but it should be written and signed before the money moves. Include:
- The parties: full names and addresses of the lender (or lenders) and borrower (or borrowers).
- The amount and the date the money is handed over.
- The interest rate, at or above the AFR for the loan's term in the month you sign, and how it compounds.
- The repayment schedule: payment amount, due dates, and the final maturity date. A term loan with a fixed end date locks in the rate.
- Prepayment: whether the borrower can pay early without a penalty.
- Late or missed payments: grace period, any late fee, and what happens if payments stop.
- Collateral, if any. A loan for a home can be secured by a mortgage or deed of trust recorded under your state's rules; a local real estate attorney can prepare it.
- What happens if the lender dies: whether the balance is owed to the estate or forgiven in the will. This matters when one sibling borrowed and others did not. See how to make a will.
- Signatures of all parties, and notarization if you want it or your state requires it for a recorded mortgage.
Then keep the records: bank transfers for the loan and for every payment. Payments made by check or transfer, not cash, show the loan is real. The interest the lender receives is taxable income in the year it is paid, per IRS Topic 403.
If the borrower may struggle to pay, ask whether you would be comfortable never getting the money back. If yes, a gift may be cleaner than a loan that strains the relationship.
Down-Payment Gifts and Gift Letters
A gift letter is a mortgage lender's requirement, not an IRS form. For conventional loans sold to Fannie Mae, the rules are in Selling Guide B3-4.3-04, Personal Gifts (version dated February 4, 2026):
- What gifts can pay for: all or part of the down payment, closing costs or reserves on a principal residence or second home. Gifts are not allowed on an investment property.
- Who can give: a relative (spouse, child or other dependent, or anyone related by blood, marriage, adoption or legal guardianship), or a non-relative with a family-like tie: a domestic partner or their relative, a fiancé, a former relative, or someone with a long-standing family-like or mentoring relationship. The donor cannot be connected to the builder, developer, real estate agent or another interested party.
- Your own money: for a one-unit principal residence, the whole down payment can be a gift. For a two- to four-unit home or a second home with more than 80% loan-to-value, the borrower must put in 5% from their own funds first.
- The gift letter must be signed by the donor, state the actual or maximum dollar amount, say that no repayment is expected, and give the donor's name, address, phone number and relationship to the borrower.
- Proof of the money: the lender verifies the funds, for example the donor's check and the borrower's deposit slip, a record of the electronic transfer to the borrower or the closing agent, or the settlement statement showing the donor's check.
FHA, VA and USDA loans have their own gift rules; ask the lender early which program applies.
Two points connect the letter to taxes. First, money you expect to be repaid is not a gift, and a letter saying "no repayment is expected" should be true. If the help is really a loan, tell the lender: it is a debt they will count. Second, the gift letter does not replace Form 709. A single parent who gives $40,000 toward a down payment in 2026 files Form 709 for the $21,000 above the annual exclusion, and owes no tax unless their lifetime exclusion is used up. Two parents who each give $19,000 from their own funds ($38,000 in total) need no return at all. For typical amounts, see the average down payment on a house.
FAQ
How much money can I give my child in 2026 without paying gift tax?
$19,000 with no return at all, or $38,000 from a married couple. Above that, you file Form 709, but you pay tax only after your lifetime gifts above the annual exclusions pass $15,000,000.
Does the person receiving a gift pay tax on it?
No. The giver is responsible for any gift tax, and gifts are not income to the person who receives them. If the gift is property, the recipient takes over the giver's cost basis for capital gains when they sell.
When is Form 709 due?
April 15 of the year after the gift, so April 15, 2027 for gifts made in 2026. An income tax extension also extends Form 709, or you can file Form 8892 for six more months.
Can I pay my grandchild's college tuition without using my annual exclusion?
Yes, if you pay the school directly and the payment is for tuition. There is no dollar limit and no return. Room, board and books paid this way are regular gifts.
Do I have to charge interest on a loan to my child?
Not on loans totaling $10,000 or less, unless the money buys income-producing assets. Between $10,000 and $100,000, an interest-free loan usually creates no income tax effect if the borrower's net investment income is $1,000 or less, though gift rules still apply. Above $100,000, charge at least the AFR or the unpaid interest is treated as a gift and as income to you.
What is a family loan agreement?
A written promissory note between relatives stating the amount, interest rate, repayment schedule and what happens if payments stop. It is the main evidence that the money is a loan and not a gift.
Is there a gift tax on giving money to my spouse?
Not if your spouse is a US citizen. For a spouse who is not a US citizen, gifts above $194,000 in 2026 can use your lifetime exclusion and require Form 709.
What happens if I give more than $19,000 and do not file?
If you are far below the lifetime limit, there is usually no tax, but you still missed a required return. File late to put the gift on record; a tax professional can help if the amount is large or the year is old.
This article is for general information and is not tax, legal or lending advice. Figures are from IRS Rev. Proc. 2025-32 and 2024-40, the Instructions for Form 709, the IRS gift tax FAQ, Rev. Rul. 2026-19 and 2026-21, 26 U.S.C. 7872, 1274 and 529, and IRS Publications 525 and 551, IRS Topic 403, and Fannie Mae Selling Guide B3-4.3-04, all read on 2026-10-27. Examples are hypothetical. AFRs change monthly; check the current revenue ruling before you sign a note. State tax and lending rules are not covered here.
