Can I Make Holiday Gifts to My Children Without Paying Taxes?

How Much Can You Gift Tax Free?

The Federal law provides for a lifetime exemption amount you can give away during your life and at your death without owing federal estate or gift tax. Under the expected OBBA changes, this exemption will increase to $15 million per person beginning in 2026, or $30 million for a married couple.  Normally, when someone makes a gift, they should report the gift on Form 709 Gift Tax Return and file the return with the IRS. While a tax is not due every time a return is filed, it keeps track of the gifts used against your lifetime exemption.

When Do You Not Need to File a Gift Tax Return?

There is a Federal annual gift tax exclusion where gifts do not need to be reported. In 2025, you can gift up to $19,000 per person and not have to file a gift tax return. Married couples may combine their gifts and give up to $38,000 per person. When you give more than the annual exclusion amount, the overage is counted against your lifetime exemption. Even for individuals who won’t fully use their lifetime exemption, it’s still important to properly report significant gifts.

How to Gift Money Tax Free

A popular option for holiday gifting is contributing to a 529 college savings plan. These accounts allow money to grow tax-free if used for education expenses. Families who want to jump-start savings can “front-load” five years of gifts at once of up to $95,000 per child ($190,000 for married couples). This can be an effective way to help a young child or grandchild get ahead.

Another meaningful way to gift is to pay certain expenses directly. Tuition paid straight to a school or medical bills paid directly to a provider are not considered taxable gifts. This allows you to offer support without affecting your annual exclusion or lifetime exemption. The key is that the payment must be made directly to the institution, not to the individual.

What if You’re Giving Non-Cash Gifts?

When gifting something other than cash, like stock, crypto, or an interest in real estate, it’s helpful to keep the cost-basis rules in mind. When you give an asset during your lifetime, the recipient also receives your original basis. If the recipient later sells the asset, they may owe capital gains tax on the appreciation. Assets that pass at death, however, receive a “step-up” in basis to fair market value, which often reduces or eliminates capital gains. This is why many families choose to gift cash during life but allow appreciated assets to pass at death.

Other Gifting Considerations to Keep in Mind

Gifting can also have Medicaid implications. New York’s nursing home Medicaid program has a five year look-back period that treats any gift, large or small, as a non-exempt transfer. If someone applies for Medicaid within five years of making gifts, those transfers may result in a penalty period where Medicaid will not cover the cost of care. A person does not need to be Medicaid-eligible at the time the gift was made for it to be counted later. For individuals who are planning for long-term care, it’s important to speak with an elder law attorney before making gifts.

Gift the Right Way with the Right Help

Holiday gifting can be a wonderful and generous tradition. With a little planning, you can make gifts that support your loved ones and fit comfortably within your broader estate plan. Your estate planning attorney and tax professional can help make sure your gifting strategy reflects both your wishes and your family’s future needs.

By Michal Lipshitz, Esq. & Alma Muharemovic, Esq.