You want to help your children or grandchildren while you are here to see it. It may be a down payment, a wedding, or a year of college. Two federal numbers decide whether that help has to be reported to the IRS. In 2026 the annual gift tax exclusion is $19,000 for each person you give to.1 Gifts above it are counted against your lifetime gift tax exemption, which is $15,000,000 per person in 2026.2 You owe no gift tax until the lifetime amount is used up.3
For most families the result is a form to file in some years and no tax. This page explains the two numbers, when a gift tax return is due, and what Illinois does and does not tax. The statute and the arithmetic are in the detailed version below.
What is the lifetime gift tax exemption?
The lifetime gift tax exemption is the total you can give away during your life, above the annual exclusions, before any federal gift tax is due. For 2026 it is $15,000,000 for each person. The IRS calls it the basic exclusion amount.2
The gift tax and the estate tax share this one amount. Each taxable gift you make uses part of it, and what you have used is not available to your estate when you die.3
If a gift tax is ever due, the person who gives pays it. The person who receives a gift generally does not report it as income.4
What is the annual gift tax exclusion for 2026?
The annual gift tax exclusion for 2026 is $19,000 for each person you give to, the same as in 2025.1 It applies to each recipient separately. You can give $19,000 to each of your children, to each of their spouses, and to each grandchild in the same year.
A gift inside the exclusion is not a taxable gift. You generally do not report it, and it uses none of your lifetime exemption.1
If you are married, each of you has your own exclusion for each recipient. Together you can give one person $38,000 in 2026. If the money comes from only one of you, the two of you can agree to treat the gift as made half by each. The IRS calls this splitting gifts. It requires a gift tax return, whatever the amount.5
How much can you gift tax free?
You can give more than the annual exclusion suggests, because some payments are not counted as gifts for this tax:6
- Tuition you pay directly to a school for someone
- Medical bills you pay directly to the doctor or hospital for someone
- Gifts to your spouse, if your spouse is a U.S. citizen
- Gifts to charity
The tuition and medical payments have to go straight to the school or the provider. Money you give your grandson so that he can pay his own tuition is an ordinary gift, and so is money for his books or his room and board.6
Here is a hypothetical example. Suppose you and your spouse have three children. In 2026 each of you gives each child $19,000 from your own account. Then you give your daughter $100,000 more, from your own account, toward a house.
- $19,000 from each of you to each of three children, $114,000 in all
- Is a gift tax return due?
- No
- Lifetime exemption used
- $0
- $100,000 more from you to your daughter
- Is a gift tax return due?
- Yes, from you
- Lifetime exemption used
- $100,000
In the example, the $114,000 is inside the annual exclusions. Neither of you reports it. Your gifts to your daughter for the year are $119,000. The first $19,000 is excluded and the other $100,000 is a taxable gift. You file a gift tax return and pay no gift tax. The return subtracts the $100,000 from your $15,000,000 lifetime exemption, which leaves $14,900,000.7
Our gift tax return checker answers the same two questions for one gift at a time: whether a return is due, and how much of the lifetime exemption the gift uses.
When do you have to file a gift tax return?
You file a gift tax return, Form 709, for a year in which any of these is true:8
- You gave one person, other than your spouse, more than $19,000.
- You and your spouse split gifts, whatever the amount.
- You gave a gift the person cannot use until later, which the IRS calls a future interest. Many gifts to trusts are of this kind. What is an irrevocable life insurance trust? covers one common case.
The return is due by April 15 of the year after the gift.8 Filing it generally does not mean you owe anything.
For most people a gift tax return is a record of what you gave and not a bill.
For most people a gift tax return is a record of what you gave and not a bill.
The return keeps the running count of the lifetime exemption you have used. Your executor will need that count, because the taxable gifts you made are listed again on your estate tax return.8 An attorney or CPA usually prepares the gift tax return.
Does Illinois have a gift tax?
No. Illinois does not tax a gift when you make it. Illinois law imposes an estate tax and a generation-skipping transfer tax, and neither one applies to a gift you make during your life.9 The person who receives the gift generally does not pay Illinois income tax on it either. Illinois starts from the income on the federal return, and a gift is not income there.9
Illinois still counts large gifts later. When you die, Illinois adds your adjusted taxable gifts to your estate to test its $4,000,000 line. Adjusted taxable gifts are generally the gifts you reported as taxable, such as the $100,000 in the example. In the state's own published example, an estate of $3,000,100 with $1,000,000 of such gifts owes $28 of Illinois estate tax, because together they are $100 over the line.10
Gifts inside the annual exclusion are not taxable gifts, so they are not part of that count.10 For an estate near the Illinois line, that difference can matter.
Our Illinois estate tax calculator has its own box for the taxable gifts you have made. Our Illinois estate tax guide explains who owes the tax, and Does Illinois have an inheritance tax? covers the person who inherits.
Does a gift get a step-up in basis?
No. A gift of cash brings no income tax for the person who receives it. A gift of property that has gone up in value carries your cost with it. If you bought stock for $10 a share and give it to your son, his cost for tax purposes is generally your $10. When he sells, he pays tax on the gain since you bought it.11
Property that passes at death is generally treated differently. Its cost for tax purposes is generally reset to its value on the date of death, so the gain during the owner's life is not taxed.11 If you have owned a house or a stock for decades, giving it away now or leaving it at your death can mean very different income tax for the person who receives it. Step-up in basis when your spouse dies explains the rule.
What goes wrong with gifts?
These are the mistakes we see most often.
People believe a gift over $19,000 means they owe tax, so they hold back help they could have given.
People give more than $19,000 to one person and never file the gift tax return.
A couple writes one check for $38,000 from one spouse's account and does not file the returns that splitting requires.
People give a grandchild money for tuition instead of paying the school directly, and use up exclusion they did not need to use.
People give away a house or stock they have owned for decades, and the person who receives it pays tax on all the gain when they sell.
People in Illinois make large gifts believing the money is now outside the estate tax, and Illinois counts those gifts toward the $4,000,000 line.
People give away money they later need for their own care.
Where we fit in. We integrate tax considerations into your investment strategy and collaborate with estate attorneys and CPAs to ensure your plan is coordinated. We are not a law firm or accounting firm, so we do not provide legal or tax advice. Everything in this material is for educational purposes, based on primary sources. Before taking any action, please consult the appropriate professionals to apply these ideas to your situation.
A gift is final. The money you give your children is money you can no longer count on for your own retirement or care. If you would like to look at how a gift would affect your own retirement, we are glad to have that conversation.
The detailed versionThe statute and the arithmeticFor estate attorneys, CPAs, and anyone who wants the rules: the annual exclusion, gift splitting, the transfers that are not taxable gifts, the unified credit, the filing rule, adjusted taxable gifts in the Illinois computation, and basis.Show
The annual exclusion
Under 26 U.S.C. § 2503(b)(1), "the first $10,000 of such gifts to such person shall not, for purposes of subsection (a), be included in the total amount of gifts made during such year." The amount is indexed for inflation. For 2026 it is $19,000.1 The exclusion applies only to "gifts (other than gifts of future interests in property)."1
Taxable gifts are "the total amount of gifts made during the calendar year, less the deductions provided in subchapter C (section 2522 and following)."10 A gift inside the annual exclusion is left out of that total, so it is not a taxable gift.
Gift splitting
Under 26 U.S.C. § 2513(a)(1), "A gift made by one spouse to any person other than his spouse shall, for the purposes of this chapter, be considered as made one-half by him and one-half by his spouse, but only if at the time of the gift each spouse is a citizen or resident of the United States." It applies "only if both spouses have signified" their consent "in the case of all such gifts made during the calendar year by either while married to the other."5 The consent is given on Form 709, and "A married couple may not file a joint gift tax return."5
Transfers that are not taxable gifts
- Tuition and medical care paid directly, § 2503(e)
- "Any qualified transfer shall not be treated as a transfer of property by gift for purposes of this chapter."
- Gifts to a spouse, § 2523(a)
- "there shall be allowed as a deduction in computing taxable gifts for the calendar year an amount with respect to such interest equal to its value."
- Gifts to a spouse who is not a U.S. citizen, § 2523(i)
- No marital deduction. The annual exclusion for these gifts is $194,000 for 2026.
- Gifts to charity, § 2522(a)
- "there shall be allowed as a deduction in the case of a citizen or resident the amount of all gifts made during such year"
A qualified transfer is an amount paid "as tuition to an educational organization" or "to any person who provides medical care" for the individual.6
The unified credit
26 U.S.C. § 2505(a) allows a credit against the gift tax equal to "the applicable credit amount in effect under section 2010(c) which would apply if the donor died as of the end of the calendar year, reduced by" "the sum of the amounts allowable as a credit to the individual under this section for all preceding calendar periods."3 Under § 2010(c)(3), "the basic exclusion amount is $15,000,000."2 The rate above the exclusion is 40 percent under § 2001(c).3
The example
Each spouse gives each of three children $19,000: 2 × 3 × $19,000 = $114,000, all inside the annual exclusion. One spouse then gives one child $100,000 more. That spouse's gifts to that child for the year are $119,000. $119,000 − $19,000 = $100,000 of taxable gifts. $15,000,000 − $100,000 = $14,900,000 of basic exclusion amount remaining. If the spouses elected to split gifts for the year, every gift either of them made to a third party would be treated as made half by each. The daughter received $138,000 in all, so each spouse would be treated as giving her $69,000 and would report $50,000 of taxable gifts. Both would file, and the total of taxable gifts would be the same $100,000.7
The filing rule
A Form 709 is due "On or before April 15 of the calendar year following the year in which a gift is made" when the donor gave any one person other than a spouse more than the annual exclusion, split gifts, or gave a future interest. The return is required "even if a gift tax is not payable."8
Adjusted taxable gifts and the Illinois computation
For the federal estate tax, "the term “adjusted taxable gifts” means the total amount of the taxable gifts (within the meaning of section 2503) made by the decedent after December 31, 1976, other than gifts which are includible in the gross estate of the decedent."10
The Illinois return uses the same figure. On Form 700, line 3 is the Illinois tentative taxable estate, line 4 is "Adjusted taxable gifts," and line 5 is the "Illinois Tentative Taxable Estate plus adjusted taxable gifts." A Form 700 is required "If an estate's gross value exceeds $4,000,000 after inclusion of adjusted taxable gifts."10 The Attorney General's calculator takes lines 3 and 5. It applies the credit table to line 3 and the 40% limit to line 5, so gifts enter the limit only. How the Illinois estate tax is calculated gives both formulas.
- $3,000,100 and $1,000,000 of gifts
- $28
- $3,500,000 and $1,000,000 of gifts
- $142,857
- $4,500,000 and no gifts
- $142,857
- $6,000,000 and $1,000,000 of gifts
- $456,071
- $7,000,000 and no gifts
- $565,603
In the second and third rows the 40% limit governs, and the tax is the same whether the $1,000,000 was given away as a taxable gift or kept. In the last two rows the credit table governs, and the table runs on the estate alone. These rows compare totals on one date and leave out any growth of the gift after it was made.
Basis
For property received by gift, "the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift." A separate rule applies to a loss when the property was worth less than its basis at the time of the gift. For property acquired from a decedent, the basis is generally "the fair market value of the property at the date of the decedent's death."11
Not covered here
The generation-skipping transfer tax. The five-year election for contributions to a 529 plan. Gifts in trust and how a trust qualifies for the annual exclusion. The valuation of a business interest or real estate that is given away. A deceased spouse's unused exclusion. Gifts made within three years of death. Gift taxes in other states.
