2026 Gift Tax Exclusions

Gifting can be an important tool for farm families who are working through a transition plan. Whether the goal is to gradually move assets to the next generation, reduce the size of a taxable estate, or help a child get established in the operation, understanding current federal gift tax rules is essential.

The 2026 Annual Gift Tax Exclusion

For 2026, the federal annual gift tax exclusion is $19,000 per recipient. This means an individual may give up to $19,000 to any number of people during the year without:

• Owing federal gift tax, or
• Reducing their federal estate tax exemption.

For married couples, “gift splitting” allows a couple to combine their exclusions and gift up to $38,000 per recipient in 2026 without using any of their lifetime exemption.

The annual exclusion applies per recipient. For example, grandparents with three grandchildren could each gift $19,000 to each grandchild in 2026, for a total of $114,000 without affecting their estate tax exemption.

Gifts Above the Annual Exclusion

Gifts exceeding $19,000 per recipient are still permitted. However, the excess amount reduces the donor’s federal lifetime estate and gift tax exemption.

For example, assume Farmer gifts farmland valued at $1,019,000 to Daughter in 2026:

• The first $19,000 qualifies for the annual exclusion.
• The remaining $1,000,000 reduces the farmer’s lifetime estate and gift tax exemption from $15,000,000 to $14,000,000.
• No immediate gift tax is owed unless Farmer has already used their entire lifetime exemption.

When a gift exceeds the annual exclusion, the donor must file a federal gift tax return (IRS Form 709), even if no tax is due.

Unlimited Gifts for Education and Medical Expenses

In addition to the annual exclusion, federal law allows unlimited payments for certain educational and medical expenses. These payments:

• Must be made directly to the educational institution or medical provider, and
• Do not count against the annual exclusion or lifetime exemption.

For farm families looking to make larger transfers, paying tuition for a child or grandchild, or covering medical expenses for a family member, can be an efficient way to provide assistance without affecting estate tax limits.

Important Considerations Before Making Gifts

While gifting can be a valuable planning strategy, it is not without risk or tradeoffs.

One key issue for farm families is income tax basis. Assets transferred at death generally receive a “step-up” in basis to fair market value. Lifetime gifts, however, carry over the donor’s basis. This can create significant capital gains tax exposure if the asset is later sold.

Gifting can also affect:

• Cash flow and retirement security for the donor
• Fairness among heirs
• Medicaid eligibility and long-term care planning
• Control of the farming operation

Finally, gifts above the annual exclusion must be properly documented, and gift tax returns filed when required.

Work with Your Advisors

Because gifting interacts with estate tax, income tax, transition planning, and family dynamics, it should be coordinated with your overall farm transition plan. Before making significant gifts, consult with your attorney, tax advisor, and other members of your advisory team to ensure the strategy supports both your long-term goals and financial security.

For more information on gifting strategies and implications, see bulletins Gifting Assets Prior to Death and Gifting to Reduce Federal Estate Taxes available at farmoffice.osu.edu.