Gifts of Money or Property: Tax Basics to Know

What you choose to give away — cash, stock, or real estate — has real consequences at tax time, both for you and for the person who receives it.

You can only give what's actually yours. If you own an asset jointly with a spouse or anyone else, both owners must agree before it goes to someone else. This can get complicated for married couples in community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — where sorting out who owns what isn't always straightforward.

It's also worth knowing how to structure gifts so you stay under the federal gift tax threshold.

• When giving to family or friends, hold back on assets that have appreciated
• When giving to charity, appreciated assets are actually the better choice

Gifts to loved ones: think twice before handing over appreciated assets

When deciding what to give, pay attention to which assets you expect to keep growing in value. If you hold onto that property until death instead, your estate grows larger — which can mean steeper probate costs, and possibly more estate tax if your estate is large enough to owe it.

There's also an advantage to inheriting property rather than receiving it as a gift during someone's lifetime: inherited assets get a "stepped-up" basis for tax purposes. In practice, that usually means a smaller capital gains bill whenever the heir eventually sells.

Lifetime gifts work differently. Whoever receives the gift takes on your original tax basis — the figure used to work out taxable gain or loss when the property is eventually sold.

EXAMPLE: Years ago, Vinny bought a piece of land for $100,000. That's his basis. He gives the land to his niece Jackie, so her basis is also $100,000. The land is now worth $150,000. If Jackie sells it, she owes capital gains tax on the $50,000 difference.

Property passed on at death follows a different rule. The heir's basis becomes the property's fair market value as of the date of death. So if the asset gained value while you owned it, the person who inherits it starts out with a higher basis — and typically owes less tax down the road.

EXAMPLE: Suppose Jackie inherits the land from Vinny instead of receiving it as a lifetime gift. Her basis is now whatever the land is worth on the day he dies, no matter what he originally paid for it. If it's still worth $150,000 and she sells at that price, she owes no capital gains tax at all. Vinny's original gain is never taxed.

How much weight you give this depends entirely on your own situation. If you plan to give away an asset that's still appreciating and you expect to live for many more years, it usually doesn't make sense to wait until death purely to chase a hypothetical tax advantage for whoever inherits it.

Going ahead with a taxable gift now — even one that uses up part of your lifetime estate tax exemption — can still be the right move. Remember that federal gift and estate tax only applies once your combined lifetime gifts and estate exceed the exemption amount, which for deaths in 2026 is $15 million per person, or $30 million for a married couple.

Gifts to charity: appreciated assets work to everyone's benefit

Charitable donations follow a different logic. Giving away property that's grown in value is often the smarter route — you sidestep tax on the gain, and you can still deduct the asset's full current market value on your income taxes.

EXAMPLE: Helen wants to make a sizable gift to her local food bank. She's weighing a few options:

• Write a $10,000 check and deduct that amount on her tax return.
• Sell stock she bought years ago for $6,000, which has since doubled in value, then donate the proceeds. She'd owe capital gains tax (currently 20%) on the gain before donating.
• Donate the stock shares themselves, directly to the charity.

Donating the shares directly turns out best for everyone. Helen can give more — the stock is now worth $12,000 — and deduct that full amount. She avoids capital gains tax on her $6,000 gain entirely, and the charity can sell the stock without owing any tax on it either.

Gift and estate tax rules can vary depending on where you live and your particular circumstances, so before making a significant gift, it's worth checking your state's rules or speaking with a tax professional.