Skip to content 
When transferring property as a gift, understanding the gift tax in real estate is essential to avoid unexpected tax liabilities. The gift tax, imposed by the IRS, applies to transfers of property without receiving full market value in return. This article explores how the gift tax works in real estate, who pays it, and strategies to minimize or avoid it, helping you make informed decisions when gifting property.
What’s the Gift Tax?
The gift tax is a federal tax on the transfer of money or property to another person without receiving equivalent value in return. In real estate, this applies when you gift a property, such as a home or land, to someone like a family member or friend. For example, transferring a house to your child without payment triggers the gift tax if the value exceeds certain limits.
What’s the 2025 Gift Tax Exclusion?
For 2025, the IRS allows an annual gift tax exclusion of $19,000 per recipient. This means you can gift up to $19,000 worth of property or cash to as many individuals as you like without incurring gift tax or reporting requirements. For real estate, if the property’s fair market value exceeds this amount, the excess may count toward your lifetime exemption or trigger gift tax. Always confirm the current exclusion amount with the IRS, as it adjusts annually for inflation.
See What You Qualify For
Before gifting real estate, explore financing options if you’re also considering purchasing property. Understanding your mortgage eligibility can help you plan your finances and assess whether gifting affects your overall estate strategy.
How Much Can You Gift Tax-Free Over a Lifetime?
In addition to the annual exclusion, the IRS provides a lifetime gift tax exemption. For 2025, this exemption is $13.99 million per individual ($27.98 million for married couples). This means you can gift up to this amount over your lifetime without paying gift tax, including real estate. For instance, if you gift a $500,000 property, the first $19,000 is covered by the annual exclusion, and the remaining $481,000 reduces your lifetime exemption. Once the exemption is exhausted, gift tax applies to additional gifts.
Take the First Step Toward the Right Mortgage
If gifting real estate is part of a broader financial plan, such as buying an investment property, consult a lender to explore mortgage options. This ensures your gifting decisions align with your homebuying or investment goals.
How Does the Gift Tax Work?
The gift tax applies to the fair market value of the property at the time of transfer. For real estate, this is typically determined by a professional appraisal. If you gift a $300,000 home to your child, and no payment is received, the entire value is considered a taxable gift (minus the annual exclusion). You must file IRS Form 709 to report gifts exceeding the annual exclusion, even if no tax is owed due to the lifetime exemption. Importantly, the gift tax is calculated based on the donor’s tax situation, not the recipient’s.
Get Approved to Buy an Investment Property
Gifting real estate can impact your financial profile when applying for a mortgage. If you’re considering purchasing an investment property, ask your lender how gifting affects your debt-to-income ratio or loan eligibility.
Who Pays the Real Estate Gift Tax?
The donor, not the recipient, is responsible for paying the gift tax in real estate. For example, if you gift a property to your sibling, you (the donor) file the gift tax return and pay any applicable tax. However, in rare cases, if the donor cannot pay, the IRS may seek payment from the recipient.
How Much Is the Gift Tax?
The gift tax rate ranges from 18% to 40%, depending on the taxable amount. For 2025, if you gift a $500,000 property, the first $19,000 is tax-free (annual exclusion). If you’ve already used your lifetime exemption, the remaining $481,000 is taxed at the applicable rate. For instance, at a 40% rate, the tax could be approximately $192,400. Consulting a tax professional can help you calculate the exact liability.
How to Avoid the Gift Tax for Real Estate
Fortunately, several strategies can help you minimize or avoid the gift tax in real estate. By planning carefully, you can transfer property without triggering significant tax consequences.
Give the Property to a Spouse or a Dependent
Gifts to your spouse are exempt from gift tax under the unlimited marital deduction, provided they are a U.S. citizen. Similarly, gifts to dependents, such as minor children, can use the annual exclusion ($19,000 per child in 2025). For example, gifting a rental property to your spouse incurs no gift tax, regardless of value.
Split the Gift
Married couples can “split” gifts to double the annual exclusion. Each spouse can gift $19,000 per recipient, allowing a couple to gift $38,000 per person annually without tax. For a $100,000 property gifted to a child, each spouse could contribute $19,000, and the remaining $62,000 would count toward the lifetime exemption.
Spread Gifts Out
To avoid exceeding the annual exclusion, spread the gift over multiple years. For instance, if a property is worth $57,000, you could gift $19,000 each year for three years, staying within the annual exclusion and avoiding the lifetime exemption or tax.
Monitor Your Estate Plan
Integrate gifting into your broader estate plan. By using the annual exclusion and lifetime exemption strategically, you can reduce your taxable estate while transferring wealth. Work with a financial advisor to ensure your gifts align with estate tax goals, especially since the lifetime exemption may decrease after 2025 due to tax law changes.
The Bottom Line: Gift Taxes Can Be Costly, But They Are Avoidable
Navigating the gift tax in real estate requires understanding annual exclusions, lifetime exemptions, and strategic planning. By leveraging exemptions, splitting gifts, or spreading them over time, you can minimize or eliminate gift tax liability. Before gifting property, consult a tax professional to ensure compliance with IRS rules and align your strategy with your financial goals, whether gifting a family home or planning for an investment property. With careful planning, you can gift real estate efficiently and avoid costly tax surprises.
