You can transfer property to a family member without paying federal gift tax, but only if you stay within the annual limit or use your lifetime exemption

The federal government does not tax gifts themselves — you do not owe tax on money or property you receive as a gift. But the person giving the gift may owe tax if the gift is large enough. For 2024, you can give up to $18,000 per person per year without filing any paperwork or using your lifetime exemption. If you give more than that in a single year to one person, you must file Form 709 (the gift tax return) even if you do not owe tax yet — you are just documenting that you used part of your lifetime exemption.

The lifetime exemption — the total amount you can give away during your life without owing gift tax — is $13.61 million for 2024. This is a federal figure that applies the same way across all states. Most people never hit this limit. When you die, whatever you did not use during life carries over to reduce your taxable estate, so using your exemption now does not cost you anything later unless your estate is very large.

Transferring property works the same way as transferring cash. A deed transfer to a family member is a gift if you receive nothing in return. The value of the property on the day you transfer it is what counts toward your annual and lifetime limits.

Key Takeaways

  • You can give $18,000 per person per year (2024) without filing Form 709 or owing any tax.
  • Gifts above $18,000 per person per year require you to file Form 709, but you still owe no tax unless you exceed your $13.61 million lifetime exemption.
  • The property value on the transfer date is what counts toward your limits, not what you paid for it years ago.
  • Spouses can combine their limits, allowing $36,000 per recipient per year without filing.
  • Transferring property to a spouse is never taxed, regardless of value, if you are both U.S. citizens.

The $18,000 annual exclusion and when you need Form 709

The annual exclusion is the amount you can give to any one person in a calendar year without reporting it to the IRS. For 2024, that amount is $18,000. You can give $18,000 to your child, $18,000 to your grandchild, $18,000 to your sibling, and $18,000 to your friend in the same year, and none of it requires paperwork.

If you give more than $18,000 to one person in a single year, you must file Form 709 with your tax return for that year. You do not owe tax at that point — you are straightforward reporting that you used part of your lifetime exemption. The IRS needs this record to track how much exemption you have left.

The annual exclusion resets on January 1 each year. If you give your daughter $20,000 in December, you have used $18,000 of your annual exclusion and $2,000 of your lifetime exemption. On January 1, you have a fresh $18,000 to give her again.

Married couples can each give $18,000 per person per year, for a combined $36,000 per recipient. If you and your spouse both want to give property to your child, you can transfer up to $36,000 in value without either of you filing Form 709.

How property value is determined for gift tax purposes

When you transfer property, the IRS values it at its fair market value on the date of transfer — what a willing buyer would pay a willing seller, neither under pressure. For real estate, this is usually an appraisal or a recent comparable sale in the area. You do not use what you paid for it 20 years ago, and you do not use what you hope it will be worth.

If you transfer a house worth $300,000 to your daughter, that $300,000 counts toward your annual and lifetime limits, even if you bought it for $150,000. If you transfer a rental property worth $500,000 to your son, the full $500,000 counts, regardless of your mortgage balance or your cost basis.

For property that is hard to value — a family business, artwork, or mineral rights — you may need a professional appraisal. The cost of the appraisal is yours to pay, not the IRS's. If you later face an audit, the IRS can challenge your valuation, so keeping documentation of how you arrived at the value is important.

Transfers to a spouse and the unlimited marital deduction

Gifts to your spouse are never subject to gift tax, regardless of size or value, as long as your spouse is a U.S. citizen. You can transfer a $5 million house, a business, or any other property to your spouse without filing Form 709 or using any of your exemption. This is called the unlimited marital deduction.

If your spouse is not a U.S. citizen, the rules are different. You can give up to $185,000 per year (2024) to a noncitizen spouse without filing or using exemption. Amounts above that require Form 709 and use your lifetime exemption. This limit exists because noncitizen spouses do not have the same estate tax protections as citizens.

The unlimited marital deduction applies only to gifts during life. When you die, your estate may owe tax on property you leave to a noncitizen spouse, so planning with an attorney is important if this applies to you.

What happens to your basis when someone receives property as a gift

When you give property to a family member, they inherit your cost basis — the original price you paid, adjusted for improvements. This matters for taxes later, when they sell the property.

Say you bought land for $100,000 and it is now worth $300,000. You give it to your daughter. She receives it with a $100,000 basis. If she sells it when ready for $300,000, she owes capital gains tax on the $200,000 gain. She does not get a "step-up" in basis just because it was a gift.

This is different from what happens when someone inherits property after you die. An heir who receives property through your will or by intestacy gets a step-up in basis to the property's value on your death date. If you die and your daughter inherits that same land worth $300,000, her basis becomes $300,000, and she owes no capital gains tax if she sells it when ready.

For this reason, some families choose to hold property until death rather than give it away during life, especially if the property has appreciated significantly. An attorney or tax professional can help you weigh the gift tax savings against the basis consequences.

Filing Form 709 when you exceed the annual limit

If you give more than $18,000 to one person in a year, you file Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) with your federal tax return. You file it even if you owe no tax — it is a reporting requirement, not a tax bill.

Form 709 asks for the donor's name and address, the recipient's name and address, a description of the property transferred, the date of transfer, and the value. You list each gift separately. If you gave your son $25,000 in cash and your daughter a house worth $350,000, you list both on the same form.

The form calculates how much of your lifetime exemption you have used. If you have never filed Form 709 before, you start with $13.61 million available (2024). After you file, the IRS records how much you used, and that amount is deducted from your exemption for future gifts and for your estate.

You file Form 709 by the tax return important date — April 15 of the following year, or October 15 if you file an extension. If you miss the important date, you can still file it late, but the IRS may assess penalties. Filing on time, even if you owe no tax, protects you.

State gift tax and property transfer taxes

Most states do not have a gift tax. However, a few states — Connecticut, Delaware, Minnesota, New York, Oregon, Rhode Island, and Washington — tax gifts or have inheritance taxes. The rules vary by state. Some tax only large gifts; others tax all gifts above a threshold.

Separately, many states charge a transfer tax or deed recording fee when you record a deed, regardless of whether it is a gift or a sale. This is not a gift tax — it is a fee to record the document in the county land records. The amount varies by county and by state, from a few dollars to a percentage of the property value. You pay this when you record the deed, not to the IRS.

Before you transfer property, check your state's rules on gift tax and your county's rules on transfer tax. Your county recorder's office or a local real estate attorney can tell you what you owe.

How to structure the transfer with a deed

To transfer real property to a family member, you execute a deed — a legal document that transfers ownership. The type of deed depends on your state and your situation. A quitclaim deed transfers whatever interest you have, without guaranteeing you own it free and clear. A warranty deed guarantees you own the property and have the right to transfer it. A gift deed is a warranty deed that explicitly states no money is changing hands.

You sign the deed in front of a notary public (requirements vary by state). You then record it in the county recorder's office where the property is located. Recording is what makes the transfer official and public. Without recording, the transfer may not be legally valid.

You do not need an attorney to prepare a straightforward gift deed, but one can help if the property has a mortgage, if there are multiple owners, or if you want to use a trust. The cost of an attorney is usually $300 to $1,000 for a straightforward transfer.

Frequently Asked Questions

Do I owe income tax on a gift I receive?

No. The person who receives a gift does not owe income tax on it, and the giver does not deduct it. Gift tax applies only to the giver if the gift is large enough, and it is a separate tax from income tax.

What if I give property to my child and they sell it a year later?

They owe capital gains tax on the increase in value since you transferred it to them. They inherit your cost basis, so if you bought the property for $100,000 and gave it to them when it was worth $300,000, and they sell it for $350,000, they owe tax on the $50,000 gain, not the full $250,000 increase from your original purchase.

Can I give property to my grandchild without paying gift tax?

Yes, the same rules explore. You can give $18,000 per year to a grandchild without filing. Gifts above that require Form 709 but do not trigger tax unless you exceed your $13.61 million lifetime exemption. There is a separate generation-skipping transfer tax for very large gifts to grandchildren, but it applies only to gifts over $13.61 million.

What if I want to give property but keep living in it?

You can give the property and retain the right to live in it, but this is complex. The IRS may value the gift as less than the full property value because you kept a right to use it. You should work with an attorney and a tax professional to structure this correctly, as the rules depend on how long you retain the right and what you pay for it.

Do I need to tell my family member about the gift tax rules?

You should tell them about the basis issue — that they inherit your cost basis and may owe capital gains tax if they sell. You do not owe them anything for gift tax purposes, but they should understand the tax consequences of selling the property later.