What You Need to Know About Federal Taxes
One of the most common questions we hear from families is whether there are tax consequences when parents help their children with a down payment or provide any other large financial gift. The intention of this article is to break down the key rules, focusing on what matters for both the donor (the person giving the gift) and the recipient (the person receiving it).
Good news first:
The recipient has no tax obligation for receiving a gift, no matter the size. Whether the recipient receives a gift of $5,000 or $500,000 there is no tax due on a gift.
The Annual Gift Tax Exclusion:
The Federal Government provides rules to determine the tax implications for the donor. The most well-known is the Annual Federal Gift Tax Exclusion.
- That amount for 2026 is $19,000 per donor
- A married couple supporting their child (or any other person) can combine their gifts to provide $38,000 per the annual gift tax exclusion.
Gifts more than the Annual Gift Tax Exclusion:
This is where parents (or the donor) become concerned, especially when helping with a down payment or otherwise. Here is the reassuring part:
- Gifts above the Annual Exclusion do not trigger taxes. It simply reduces the lifetime gift and estate tax exemption.
The Lifetime Gift and Estate Tax Exemption:
As of 2025, the lifetime exemption is approximately $15,000,000 per person. This means that any amount in excess of the annual exemption is simply deducted from the lifetime exemption.
Example:
A parent wants to give a gift of $250,000 to help their child buy a home.
- First $19,000 (annual exclusion) requires no reporting
- Remaining $231,000 must be reported on a gift tax return (Form 709)
- That amount simply reduces their lifetime exemption: $15,000,000 – $231,000 = $14,769,000 remaining exemption.
No tax is owed.
No money is due.
It’s just a bookkeeping entry with the IRS.
Summary
- Recipients never pay taxes on gifts.
- Gifts up to $19,000 per donor (2 026) require no reporting.
- Gifts above that simply reduce the donor’s lifetime exemption—no tax is due.
- Parents can confidently help children with a down payment without triggering immediate taxes.*
Disclosure: This example is provided for illustrative and educational purposes only and is based on a hypothetical scenario, not an actual client experience. The figures and thresholds referenced reflect current federal gift and estate tax rules and exemption amounts as of 2025–2026, which are subject to change based on future legislation or regulatory guidance. This information is intended to provide a high-level overview of federal gift tax concepts and does not account for all individual circumstances, potential limitations, or related planning considerations. Results may vary depending on a donor’s overall financial situation, prior gifting history, marital status, and applicable federal or state laws. This example does not constitute tax or legal advice, nor does it represent a recommendation of any specific strategy. Individuals considering gifting or estate planning strategies should consult with qualified tax and legal professionals to determine whether a particular approach is appropriate for their situation and to ensure compliance with applicable reporting requirements, including IRS Form 709. This example does not imply that similar outcomes will be achieved in all cases.
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