Don’t Sweat the Gift Tax

You have to let the IRS know about large gifts, but tax consequences aren’t a concern for most families.

- SANDRA BLOCK

In 2024, Bob DeSmidt, 78, of Sioux City, Iowa, wanted to help his adult son buy a home in an area that was closer to his new job.

DeSmidt, a retired chief financial officer for a construction company, could afford to help his son with the purchase, but the contribution he and his wife wanted to make exceeded the annual gift tax exclusion—the amount of assets that individuals can transfer to each recipient without filing a gift tax return or reducing their lifetime exemption for federal gift and estate tax. The gift tax exclusion in 2024 was $36,000 for a married couple, or $18,000 per individual.

The DeSmidts ended up giving their son more than $36,000 and filing a gift tax return with the IRS. But that doesn’t mean they had to pay tax on the gift, or that their assets will be subject to federal estate tax after they die. In fact, it’s highly unlikely that will happen. The One Big Beautiful Bill Act, signed into law in 2025, permanently increased the federal exemption for gift and estate tax. For 2026, it’s $15 million per person, or $30 million for a married couple, and the exemption is indexed annually to inflation. DeSmidt says that while he and his wife are financially comfortable, their estate’s value is well below that threshold. Iowa has no estate tax, so state taxes aren’t a concern.

Given such a large federal lifetime exemption, only the very wealthy—and extremely generous—gain a tax benefit by keeping their gifts within the annual exclusion. Using this strategy, they can reduce the size of their estate, limiting the amount of it that is subject to tax and preserving the full lifetime exemption amount. Any gifts that exceed the annual exclusion count against the lifetime exemption.