IRC Section 2503(b) provides an exclusion from gift tax of any gift (other than a gift of a future interest in property) for the first $10,000 given to someone by the giver (taxpayer). This amount is adjusted annually for inflation and for 2025 and 2026 is $19,000. So, if you give $15,000 to your grandchild in 2026, no gift tax is owed and no gift tax return (Form 709) needs to be filed (unless there were gifts above the exclusion amount or of a future interest).
The OBBBA increased the estate and gift exemption amount at section 2010 to $15 million, adjusted for inflation after 2026. This is a very large figure and less than a third of one percent of people will die with over $15 million of assets.
But, if you gift $20,000 to your adult child in 2026 to help them buy a house or car (and let's assume the giver is single for simplicity), a gift tax return must be filed for the $1,000 above the gift exclusion. This person owes no gift tax, but instead must file to report they used $1,000 of their $15 million estate/gift exemption.
For the roughly 99.8% of people who will never have over $15 million of assets, what is the point of filing a Form 709? And, filing a Form 709 also means you have to report all of your charitable contributions (no effect on your $15 million exemption - just a requirement for Form 709 - see page 2 of instructions, right column). And this is all extra processing for the IRS with no tax effect for the bulk of the returns. Of course, there likely are many gift tax returns not filed either due to unawareness of the requirement or because the giver knows they are unlikely to ever owe estate or gift tax (but these are not justifiable reasons not to file).
Well, the estate/gift tax exemption increased significantly in recent years, but the gift exclusion did not. For example, in 2000, the estate exemption was $675,000 and the annual gift exclusion was $10,000. [see helpful summary from Tax Foundation] So, simple math means that from 2000 to 2026, the estate exemption increased 2,122% while the gift exclusion increased a mere 90%. That is quite a difference!
Of course, if the gift exclusion had also increased 21.22 times (to $210,220), this would be a tremendous estate planning option for people who do have over $15 million of assets. But, what about at least doubling the gift exclusion amount? The Joint Committee on Taxation can likely come up with a justifiable increase that will reduce the number of Forms 709 filed where the filer will never have $15 million to give away during life or at death, but not create a significant estate reduction tool for the few individuals who will ever owe estate tax today.
Also, the IRS has data on how many people may ever owe estate tax. Their Personal Wealth Study, prepared every three years, uses Form 706 (estate tax return) data "to estimate the wealth of the living population." Using the most recent data of 2019, when the estate exemption was $11,400,000, only about 206,000 individuals were estimated to have gross assets worth more than this amount. The breakdown:
- 113,249 estimated to have wealth between $11.4 and $20 million
- 72,012 with wealth between $20 and $50 million
- 20,209 with wealth of $50 million or more
The U.S. Census Bureau also reports on wealth. For 2023, the median household wealth was $191,100. One in 10 households had wealth of zero, while one is 10 households had wealth greater than $1.8 million.
Too bad they can't break this down into smaller increments in the top 10% because the variation in this group is quite wide.
And one more gift tax change that I noted in my 2/9/26 blog post on Trump Accounts is to modify Section 530A to include a provision similar to Section 529(c)(2)(A)(i) to treat contributions to a Trump Account as a gift of a present interest (even through gifts to 529 and Trump Accounts are future interests). This will avoid the need to file a gift tax return (the $19,000 gift exclusion only applies to gifts of present interests). Seems like an easy legislative fix. Or perhaps the IRS can simplify this filing by allowing the giver to report this gift on a line added to the Form 1040 starting in 2026 rather than filing a Form 709 (contributions to Trump Accounts cannot be made until July 4, 2026) and not file a gift tax return unless there were other gifts that warrant that.
What do you think?
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