When most people hear the word gift, they think of birthdays, holidays, or helping out a family member. Under federal tax law, however, the definition of a gift is much broader — and misunderstanding it can quietly create reporting obligations or reduce your lifetime estate tax exemption.
This article explains what legally qualifies as a gift under federal law, how much you can give before gift tax becomes an issue, and how gifts are reported and accounted for, including the current lifetime exemption amount.
What Is Considered a “Gift” Under Federal Tax Law?
For federal gift tax purposes, a gift occurs when a person transfers money or property to another person for less than full and adequate consideration.
In other words, if you give something of value and do not receive something of equal value in return, the IRS may treat the transfer as a gift — even if you did not intend it to be one.
Common examples include:
- Giving cash or assets to family members
- Adding someone to the title of real estate without fair compensation
- Forgiving a loan or failing to enforce repayment terms
- Selling property to a relative at a discounted price
- Transferring business interests below fair market value
In Texas, these issues frequently arise when parents help children purchase homes, transfer property for estate planning purposes, or restructure family-owned businesses.
How Much Can You Gift Without Paying Gift Tax?
The Annual Gift Tax Exclusion
Each year, federal law allows individuals to give up to a set amount per recipient without triggering gift tax reporting or reducing their lifetime exemption.
- 2026 annual exclusion: $19,000 per recipient
You may give $19,000 to each of as many people as you like in 2026 without filing a gift tax return, provided the gift is a present-interest gift.
If you are married, you may be able to split giftswith your spouse, effectively allowing up to $38,000 per recipient, though this typically requires filing IRS Form 709 to make the election.
What Is the Lifetime Gift and Estate Tax Exemption in 2026?
Gifts that exceed the annual exclusion are not necessarily taxed immediately. Instead, they typically reduce your lifetime gift and estate tax exemption, also referred to as the basic exclusion amount.
- 2026 lifetime exemption: $15,000,000 per individual
This exemption is unified, meaning it applies to both lifetime gifts and transfers at death. Most taxpayers who make large gifts do not pay gift tax out of pocket — they simply use up part of this exemption.
Federal transfer taxes generally apply only after cumulative taxable gifts exceed the available exemption.
Do Certain Gifts Not Count at All?
Yes. Some transfers are excluded from gift tax regardless of amount, if structured properly. These include:
- Direct payment of tuition to an educational institution
- Direct payment of medical expenses to a provider
- Gifts to a U.S. citizen spouse
- Certain charitable gifts
The key word is direct. Paying the institution or provider directly is critical — reimbursing someone later can change the tax treatment.
Do I Need to File IRS Form 709 for a Gift?
When Gift Tax Reporting Is Required
You generally must file IRS Form 709 (United States Gift and Generation-Skipping Transfer Tax Return) if:
- You make a gift exceeding the annual exclusion
- You split gifts with your spouse
- You make certain gifts to trusts
- You transfer property for less than fair market value
Importantly, filing Form 709 does not necessarily mean you owe gift tax. In most cases, the form simply tracks how much of your lifetime exemption has been used.
How Gifts Are “Accounted For” Under Federal Law
Very generally, the process works like this:
- Determine fair market value of the property transferred
- Subtract any consideration received
- Apply annual exclusions and deductions
- Report the remaining taxable gift on Form 709
- Reduce the remaining lifetime exemption accordingly
Valuation is often the most sensitive issue — especially for real estate, closely held businesses, or partial interests.
Frequently Asked Questions About Gift Tax
Do I have to pay gift tax immediately?
Usually not. Most taxable gifts reduce the lifetime exemption rather than triggering immediate tax.
Does Texas have a state gift tax?
No. Texas does not impose a state-level gift tax, but federal gift tax rules still apply.
Is adding someone to my house title considered a gift?
Often yes, to the extent ownership is transferred without full compensation.
Are loans to family members considered gifts?
They can be, especially if there is no promissory note, interest, or expectation of repayment.
Practical Considerations for Texas Families and Business Owners
Clients often seek legal advice after a large transfer has already occurred — such as forgiving a family loan, adding a child to real estate title, or funding a trust — only to learn later that a gift tax return should have been filed.
Proper planning and documentation can often:
- Avoid unnecessary exemption use
- Reduce audit risk
- Preserve estate planning flexibility
Coordinating gift tax reporting with estate planning, probate preparation, and long-term wealth strategies is particularly important for Texas families with real estate or closely held businesses.
Final Thoughts
Federal gift tax rules are less about writing checks to the IRS and more about tracking value transfers over time. Understanding how gifts are defined, reported, and accounted for can prevent surprises and preserve long-term planning opportunities.
This article is for general informational purposes only and does not constitute legal or tax advice. Individual circumstances vary.
At David C. Barsalou, Attorney at Law, PLLC, we help clients navigate business, family, tax, estate planning, and real estate matters ranging from document drafting to litigation with clarity and confidence. If you’d like guidance on your situation, schedule a consultation today. Call us at (713) 397-4678, email barsalou.law@gmail.com, or reach us through our Contact Page. We’re here to help you take the next step.