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If you’ve been holding back on helping your kids or grandkids for fear of the gift tax, President Donald Trump’s IRS just gave you a little more room.
For 2027, the annual exclusion for gifts “increases to $20,000, up from $19,000 for calendar year 2026,” the IRS announced Nov. 5. (1)
“American individuals and businesses will see increased tax benefits next tax year,” said Frank J. Bisignano, the IRS chief executive officer. (1)
I’ve been a CPA since 1981, and here’s what a lot of people don’t realize: That $20,000 isn’t a limit on how much you can give. It’s the point where paperwork starts.
Give one person other than your spouse more than the annual exclusion in a year, and you generally must file a gift tax return, Form 709. (2)
But filing isn’t paying. The IRS applies a credit against the gift tax as taxable gifts are made. (3) And under current law, the basic exclusion amount is $15,000,000 for gifts made in 2026. (4)
In plain English: Unless your lifetime taxable gifts top $15 million, a big gift to your grandkid won’t cost you a dime in federal gift tax.
There is one catch that can cost you plenty, though. Here are five things to know before you write the check.
1. Give in 2026, then again in 2027
The annual exclusion is per person, per year. You can generally give up to $19,000 to each person in 2026 without filing a gift tax return, then up to $20,000 to the same person in 2027. (1)(2)
Married? Each spouse gets their own exclusion. (4) If each of you gives from your own money, that’s $38,000 to each grandchild in 2026 and $40,000 in 2027, generally with no return required.
One wrinkle: If you “split” a gift that comes from just one spouse’s money, you must file a return, no matter how small the gift. (2)
Before you give, though, make sure you can afford to. Money you give away at 70 is money you can’t spend at 90.
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2. Pay the school or the doctor directly
Generally, tuition and medical expenses you pay for someone aren’t taxable gifts, and they don’t count against your annual exclusion, if you pay them the right way. (4)
The trick is to pay the right party. The IRS says tuition must be paid “directly to the qualifying educational organization,” and medical payments must go “to the care provider.” (2)
Hand your grandson a check for his tuition, and it counts toward your annual exclusion. Send the same check to the college, and it doesn’t.
3. Front-load a 529 plan
Want to give more than the annual exclusion to a college savings plan? The IRS lets you elect to spread a 529 contribution over five years. (2)
For 2025, that meant you could treat up to $95,000 for one person as if you’d given it over five years. (2) That’s five years’ worth of annual exclusions at once.
With the 2027 exclusion, the same math works out to $100,000. You file a Form 709 to make the election.
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4. The catch: a nursing home
Here’s the one that can hurt. Before Medicaid will help pay for nursing home care, it looks back at what you gave away.
Federal law sets a “look-back period” of 60 months, five years, before the date you apply for Medicaid. (5) Gifts made in that window can trigger a penalty period, a stretch when Medicaid won’t cover your nursing home care. (5)
Worse, the penalty clock usually doesn’t start when you make the gift. It starts on the date of the gift or the date you’ve entered a nursing home and would otherwise qualify for Medicaid, whichever is later. (5) That’s exactly when you can least afford it.
If paying for care someday is your worry, plan for it before you give. Long-term care insurance is one way. Compare long-term care insurance options here.
5. Think twice before gifting stock you’ve held for years
When you give someone property, their tax basis is generally the same as yours. (4) So if you give your grandkids stock you bought for $10,000 that’s now worth $60,000, they’ll have a $50,000 taxable gain when they sell.
If they inherit the same stock instead, their basis is generally the fair market value on the date of your death. (6) That can wipe out the gain that built up while you owned it.
Give cash during life. Think about leaving appreciated property in your will instead. And if you don’t have a will, start there.
Bottom line
The new $20,000 figure is nice, but it was never what stood between you and helping your family.
For almost everyone, gift tax isn’t the problem. Running short yourself, or giving too close to needing nursing home care, is.
Give generously, give smart, and keep enough for yourself. Your family would rather have you comfortable than have your money early.
Sources: 1. IRS; 2. IRS (Form 709 instructions); 3. IRS; 4. IRS; 5. Centers for Medicare & Medicaid Services; 6. IRS
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