More and more, parents and older generations are stepping in to help the younger ones achieve the American dream—whether by contributing to a down payment or passing down the family home. It’s a generous impulse, one that’s often inspired by a desire to give while they’re still around to see their loved ones benefit.
But what many don’t realize is that gifting property, or even the cash to buy it, can come with unexpected tax consequences. Under federal law, certain gifts might be subject to the gift tax, and if you live in Connecticut, the Constitution State imposes its own version of the tax, too.
Without careful planning, a well-meaning gift can trigger a hefty tax bill. Here’s what you need to know to avoid turning a generous gesture into a costly mistake.
What is the gift tax—and who pays it?
The IRS imposes a tax on “the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether or not the donor intends the transfer to be a gift.”
In other words, this applies to any transfer of property where the giver receives nothing—or less than full value—in return. That includes cash, real estate, or other valuable assets. And if the gift exceeds a certain dollar amount, it could trigger a federal gift tax.
In 2025, the federal annual gift tax exclusion is $19,000 per recipient. As long as your gifts stay under that threshold, you won’t owe federal gift tax or need to file a return. But if you exceed that amount, you might have to report the gift, and it could count against your lifetime gift and estate tax exemption.
Crucially, it’s the giver—not the recipient—who’s responsible for paying any gift tax owed.
Connecticut’s take
If you live in Connecticut, there’s one more wrinkle to consider when gifting property: The state-level gift tax. It’s the only state in the country that still imposes a tax on gifts, including some real estate transfers.
Connecticut follows the federal definition of a gift, but unlike the federal gift tax, Connecticut applies a tax only when you exceed a lifetime exemption of $13.99 million. If your total lifetime gifts surpass that threshold, any amount over the federal exclusion limit is taxed at a flat 12% rate.
While that exemption is high enough to shield most residents, it’s not out of reach for wealthier households or families who plan to pass down real estate portfolios, large cash gifts, or business assets. And because Connecticut tracks lifetime gifts, you’ll need to file a return even if no tax is due, just to keep your records in order.
Why this matters for homeowners and families
For most Americans, real estate is the single most valuable asset they own, which means it’s also one of the most likely to trigger gift tax consequences. While Connecticut’s $13.99 million exclusion makes it unlikely for most residents to face a state-level gift tax, federal rules are far easier to run afoul of.
Even something as common and seemingly innocuous as helping a child with their down payment can push you over the federal threshold. In fact, the average down payment in Q4 of 2024 was $30,250, according to Realtor.com data—well above the $19,000 tax-free limit.
The trouble is, many people trigger the gift tax without realizing it, through informal transfers or simply stepping in to help a loved one buy their first home.
It’s an emotional decision. You wanted to help your kid, not get caught up in a tax mess. But without planning ahead, a well-intentioned gift could create unexpected paperwork, tax liability, or worse, a tax compliance issue.
Ways to transfer real estate without triggering a gift tax
The good news is that there are several ways to help loved ones with housing costs without running into gift tax trouble.
Spread out gifts over time
Instead of giving a large lump sum, consider making smaller gifts below the annual exclusion limit ($19,000 per recipient in 2025). For example, you could gift that amount each year to help a child build a down payment. If you’re married, you and your spouse can “gift split,” giving a combined $38,000 annually without tax consequences. It’s slower, but safer.
Keep in mind that in Connecticut, you’ll still need to file taxes on these returns to count them toward your lifetime exclusion of $13.99 million.
Use a revocable living trust
If you want to pass down your home, placing it in a revocable living trust can help your heirs avoid both probate and the gift tax. Because the property isn’t technically transferred until your death, it doesn’t count as a taxable gift, and it can simplify the legal process for your family.
It can also help you avoid overpaying in capital gains taxes, because you will inherit the property at its current market value. This stepped-up cost basis helps keep your gains under the federal exclusion limit and keeps more money in your pocket.
Gifting generously without giving Uncle Sam a cut
Passing down a home or helping a loved one buy one can be one of the most meaningful financial gifts you give. But whether it’s real estate, cash, or other assets, gifting without a plan can come at a cost.
The gift tax may feel like a technicality, but it has real financial implications for both you and your heirs.
