The short answer
Gift tax is the federal tax on transferring property, including real estate, to another person for less than full value, imposed on the donor under section 2501. For 2026 the first $19,000 of gifts to each recipient is excluded and the basic exclusion amount is $15,000,000, so most real estate gifts are reported on Form 709 without tax being paid. The larger cost is often income tax later, because the recipient generally takes over your basis and the gain built into it.
At a glance
| Annual exclusion 2026 | $19,000 per recipient, present interests only |
|---|---|
| Basic exclusion 2026 | $15,000,000, shared between lifetime gifts and the estate |
| Return | Form 709, due April 15 of the year after the gift |
| Recipient's basis | Generally the donor's adjusted basis, with a fair market value limit for losses |
The tax comes from chapter 12 of the Code and is measured by the property's value on the date of the gift.
Section 2512 values a gift of property at its value on the date of the gift, and when property is transferred for less than adequate and full consideration, the difference is the gift. Selling a rental to your child below market is therefore a part gift. Under section 2503(b) gifts of present interests up to the annual exclusion are left out, and Rev. Proc. 2025-32 sets that exclusion at $19,000 for 2026, or $194,000 for gifts to a spouse who is not a US citizen.
Gifts to a US-citizen spouse are deductible in full under section 2523. Taxable gifts above the exclusion use up the basic exclusion amount, which Rev. Proc. 2025-32 puts at $15,000,000 for 2026 after the July 2025 tax act, before any tax is due. The Form 709 instructions list a top rate of 40%, require the return by April 15 of the following year, and ask you to attach any appraisal used to value real estate.
A worked example shows a gift costing no gift tax but carrying the deferred gain.
Hypothetical: in 2026 you deed a rental worth $1,000,000 to your daughter. It is the replacement property from an earlier exchange, so your adjusted basis is only $300,000. After the $19,000 exclusion the taxable gift is $981,000; if your spouse consents to split it on Form 709, each of you is treated as giving $500,000 and, after a $19,000 exclusion each, reports a $481,000 taxable gift.
No gift tax is paid, but under section 1015(a) your daughter's basis is your $300,000. If she sells for $1,000,000, she has a $700,000 gain, including the gain you deferred. Had she inherited it instead, section 1014 would generally set her basis at value on the date of death. The figures are round illustrations; your CPA should rework them for your own property.
It bites when a gift follows an exchange too closely or wipes out a step-up.
Giving away a replacement property soon after the exchange invites the question of whether you held it for investment at all; the cases are covered in gifting replacement property after a 1031. Basis carries over under section 1015, so the family keeps the deferred gain and loses the step-up the heirs would otherwise receive; compare holding for a step-up.
Two smaller traps. If the property is worth less than your basis, section 1015(a) limits the recipient's loss basis to fair market value, so the loss disappears. Section 1015(d) adds part of any gift tax you actually pay to the recipient's basis, but not above fair market value. For the exemption's interaction with your estate, see portability of the estate exemption.
Related questions
Do I owe gift tax if I give my child a rental property?
Usually not in cash, because the value above the $19,000 exclusion is absorbed by your $15,000,000 basic exclusion for 2026. You still file Form 709 to report it.
Is adding a child to the deed a gift?
Generally yes, to the extent of the share they receive without paying for it, valued on the date of transfer under section 2512. It can also change who the taxpayer is for a later exchange.
Can I gift a DST interest instead of a building?
A DST beneficial interest can be transferred as a gift, subject to the trust's transfer rules, and the same valuation and basis rules apply. See transferring a DST to heirs and trusts.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- 26 U.S. Code 2501, Imposition of tax
- 26 U.S. Code 2503, Taxable gifts
- 26 U.S. Code 2512, Valuation of gifts
- 26 U.S. Code 2523, Gift to spouse
- 26 U.S. Code 1015, Basis of property acquired by gifts and transfers in trust
- 26 U.S. Code 1014, Basis of property acquired from a decedent
- IRS, Rev. Proc. 2025-32 (2026 inflation adjustments)
- IRS, Instructions for Form 709 (2025)