Need to Know Tax › Deductions, credits, and gains
Gifts and estates
Gift and estate taxes
For parents helping with a down payment, grandparents funding college, and anyone wondering whether the estate will owe tax. Nearly always, it will not. The tax that actually bites in a family transfer is income tax, and it turns on a single word: basis.
Very few families owe federal gift or estate tax, and the 2025 tax law made sure of it. For 2026 you can give up to $19,000 to any one person without filing anything, and you can do that for as many people as you like. A married couple can each give $19,000, so a child can receive $38,000 from the two of them in a year, and a child and a spouse can receive $76,000. The lifetime exemption, the total that can pass free of tax by gift during life and by inheritance at death, is $15 million per person, or $30 million for a married couple, now permanent and indexed for inflation. Colorado has no estate or inheritance tax at all.
| Item | Per person | Married couple |
|---|---|---|
| Annual gift exclusion, per recipient | $19,000 | $38,000 |
| Lifetime gift and estate exemption | $15,000,000 | $30,000,000 |
| Direct payments of tuition or medical bills to the institution | Unlimited | Unlimited |
| Colorado estate or inheritance tax | None | None |
When a gift tax return is required
Give more than $19,000 to one person in a year and a gift tax return, Form 709, is required. It is a separate return, not part of the Form 1040, due April 15 with it, and the giver files it. Usually no tax is owed. The amount over $19,000 simply uses up part of the giver’s $15 million lifetime exemption, and the return is the record of how much has been used. Tax is owed only when the lifetime total passes the exemption, which for most families never happens. A married couple who want to treat a gift from one of them as made half by each files a 709 to say so.
The person who receives a gift owes nothing and reports nothing. A gift is not income. That is true whether it is $500 at Christmas or $50,000 toward a house. The only tax question belongs to the giver, and the only question is whether a Form 709 is needed. Payments made directly to a school for tuition or directly to a hospital for medical care do not count against the $19,000, no matter how large (verify); the payment has to go to the institution, not to the student or patient.
Worked example: a $60,000 down payment from both parents
| Amount | Result | |
|---|---|---|
| Gift from the parents to their daughter | $60,000 | |
| Covered by two annual exclusions (mother and father) | $38,000 | No return needed for this part |
| Over the exclusions | $22,000 | Form 709 required, filed by the parents with their 2026 return |
| Gift tax owed | $0 | $22,000 comes off the $30 million lifetime exemption, leaving $29,978,000 |
| Income tax to the daughter | $0 | A gift is not income |
| Had the gift been $38,000 in December and $22,000 in January | $0 | No Form 709 at all, since each year is under the exclusions |
If the daughter is married, a gift to her and her spouse together is covered by four exclusions, $76,000, with no return. The lender will ask for a gift letter either way.
Income tax is the bigger issue
For most families the tax that matters is not gift or estate tax but income tax, and it turns on a single idea: basis. Basis is what the owner paid for something, and it decides the gain when the thing is sold.
Property you give away keeps your basis. If a parent bought stock for $10,000 and gives it to a child when it is worth $50,000, the child’s basis is $10,000. When the child sells, the $40,000 gain is taxed, at the child’s rate or, for a younger child, at the parents’ rate under the kiddie tax.
Property someone inherits gets a basis equal to its value at death. The same stock, left in the will instead, comes to the child with a basis of $50,000. Sold the next week, there is no gain and no tax. The $40,000 of growth is never taxed by anyone.
Worked example: the family home, given now or left later
Parents bought the house in 1985 for $95,000. It is worth $560,000. They want the children to have it, and a friend has suggested deeding it over now to avoid probate.
| Deeded to the children now | Left to them at death | |
|---|---|---|
| Gift tax return | Form 709 for $560,000; no tax, uses exemption | None |
| Children’s basis | $95,000 | $560,000 |
| Children sell after the parents’ deaths for | $580,000 | $580,000 |
| Taxable gain | $485,000 | $20,000 |
| Federal and Colorado tax on the sale, roughly | $94,000 to $115,000 | $3,900 |
| Also lost by giving | The parents’ $500,000 home-sale exclusion, the senior property tax exemption, and control of the house | — |
Rounded; the gift route is taxed at 15% or 20% federal plus 3.8% NIIT for some heirs, plus 4.40% Colorado. Probate in Colorado is inexpensive and a beneficiary deed, a living trust or joint tenancy with right of survivorship all avoid it without giving up the step-up; an attorney can advise which. The one case where giving the house can make sense is a parent who may need Medicaid for nursing care, and that is a conversation with an elder-law attorney, with the basis cost on the table.
The estate side
The estate tax applies only to estates over $15 million per person for deaths in 2026, and a surviving spouse can elect on Form 706 to carry over whatever the first spouse did not use, called portability; it is worth filing for even when no tax is due, because the family’s circumstances twenty years later are unknown. An estate below the line files no estate tax return. It may still file an income tax return, Form 1041, for income earned while it is being settled, which is covered in When a loved one dies. Life insurance paid to a named beneficiary is not income to the beneficiary and, unless the estate owned the policy, is not part of the taxable estate.
Behind the scenes
Two questions get asked every year that have nothing to do with the Form 1040. Did anyone give a single person more than $19,000, including a down payment, a car, or forgiving a loan? That means a Form 709, which goes unfiled for years because nobody owed tax and nobody asked, and an unfiled 709 keeps the statute of limitations open on the gift forever. And when inherited property is sold, a preparer looks for the value at the date of death, usually from the estate’s appraisal or a broker statement, instead of the price the parents paid decades ago. Using the wrong one can tax a gain that does not exist.
The Colorado side
Colorado has no gift tax, no estate tax and no inheritance tax; nothing is owed to the state on what you give or inherit. The income tax side flows through: a gain on inherited property sold is taxed at 4.40% on the same federal figure, with the same stepped-up basis. Contributions to a grandchild’s CollegeInvest 529 plan are gifts for federal purposes (a five-year front-loading election allows $95,000 at once) and earn the Colorado subtraction for the contributor. A beneficiary deed, which Colorado allows, transfers a house at death outside probate while keeping the step-up.
What to bring your preparer
- A note of any gift over $19,000 to one person during the year, including a down payment, a car, a forgiven loan, or a large 529 contribution
- For a gift of property or stock: what you paid for it and when, which becomes the recipient’s basis
- For inherited property sold: the date-of-death value (appraisal, broker statement, or the estate’s inventory)
- Any prior Forms 709 filed, since each one carries the running total of exemption used
- If a spouse died: whether a Form 706 was filed for portability
- If you are considering deeding property to a child: the deed, before it is signed
Questions people ask
My parents gave me $30,000. Do I owe tax on it?
No. A gift is not income to the person who receives it. Your parents may need to file a Form 709 if either one gave you more than $19,000, but they will owe nothing.
Can I give $19,000 to each of my three grandchildren?
Yes, and your spouse can too, $114,000 in all, with no return. Paying their tuition directly to the school is on top of that, without limit.
I forgave the $40,000 my son owed me. Is that a gift?
Yes, for the amount forgiven above $19,000, which means a Form 709. It is not income to your son either; a forgiven loan between family members is treated as a gift, not as cancelled debt.
Should we put the kids on the deed to avoid probate?
Usually not; see the example above. A beneficiary deed, a living trust or joint tenancy gets the same result without forfeiting the stepped-up basis. Ask an attorney, and ask about basis specifically.
Is the $15 million exemption going to drop again?
The 2025 law made it permanent and indexed it, with no scheduled reduction. Permanent means until Congress changes it, as always.
Can my spouse and I give one grandchild $38,000 from my account alone?
Yes, by electing gift-splitting on Form 709: the two of you are treated as each giving half, so $38,000 from one spouse’s account uses two $19,000 exclusions. The election covers every gift made that year, both spouses sign, and it requires a return even though no tax is due.
Before signing over the house, ask about basis
Giving away appreciated property to avoid probate or qualify for benefits has an income tax cost that often goes unmentioned until the sale. An attorney can usually get the same result another way; ask before the deed is recorded.