Lifetime Giving: Help Your Family Today and Reduce Taxes Tomorrow

As we enter the season of giving, many families are thinking about generosity. In my post on charitable gifting strategies, I explain how strategic, thoughtful giving can benefit the meaningful causes you care about and reduce your tax burden.

But tax benefits aren’t limited to charitable donations. Lifetime giving, or sharing assets with family while you’re still here to see them benefit, is just as meaningful, and it can be a powerful tax strategy when used intentionally.

Whether you’re thinking about small gifts, transferring real estate, or preparing your estate for the future, understanding the lifetime gift tax exclusion and how gifting affects capital gains, estate tax, and inheritance rules is valuable.

Below is a clear, practical guide to how lifetime giving works, the tax rules that matter, and a special section for Californians wondering how to avoid property tax reassessment under California Prop 19.

What Is Lifetime Giving?

Whenever you give money or property without expecting something of equal value back, the IRS treats it as a “gift.” That could be cash, a portion of real estate, stocks or crypto, or paying someone’s tuition or medical bills directly.

From the IRS’s perspective, it’s the giver (not the recipient) who’s responsible for tracking and, potentially, reporting the gift (see the IRS FAQ on gift taxes). But thanks to two major exclusions, most gifts are entirely tax-free:

• Lifetime Gift & Estate Tax Exemption (2025): The lifetime gift tax exemption is the total amount you’re allowed to give away to individuals during your life and at death without owing federal gift or estate tax. In 2025, that amount is $13.99 million per person. For 2026, the limit increases to $15 million.
• Unlimited Gift Tax Exclusion: Direct payments of tuition or medical bills to qualified institutions are tax-free.

The bottom line: Most generous gifts for family and friends won’t likely lead to a tax bill. But understanding how they’re tracked and what the reporting requirements are can help you stay in control of your long-term plan and ensure compliance with the IRS.

Cash vs. Property Gifts: Why Cost Basis Matters

Giving cash is simple: your recipient doesn’t pay income tax, and you don’t pay gift tax as long as you stay within the IRS limits. According to the 2025 Gift Tax Exclusion, gifts at or below the limit of $19,000 per recipient are exempt from taxes and IRS reporting requirements. Giving more than $19,000 in a year doesn’t necessarily trigger tax either; it just triggers paperwork. In this scenario, the giver of the gift files Form 709 so the IRS can track their lifetime exemption.

But gifting property—like stocks, real estate, or business interests—may come with an extra wrinkle: cost basis. Note that records and appraisals may be required for substantial or non-cash gifts.

When you gift someone property during your lifetime, they inherit your original cost basis, which is equivalent to what you originally paid for it, not what it’s worth today. This is known as a carryover basis, and it can significantly impact their future taxes.

Let’s say you bought a home for $200,000 years ago, and now it’s worth $800,000. If you gift that home to your child, they receive your $200,000 basis. If they later sell it, they could owe capital gains tax on the $600,000 difference—even though they paid nothing to acquire it.

In contrast, inherited property works differently. Assets passed at death usually get a step-up in basis to the market value on the date of death. That means if your child inherits the same $800,000 home and sells it shortly after, they may owe little or no capital gains tax at all.

This is why it’s so important to think strategically and consult a tax attorney before gifting appreciated assets during your lifetime. Sometimes it’s better to hold the asset and pass it through your estate for maximum tax efficiency.

With all of these factors to keep in mind, when does lifetime giving make sense?

When Lifetime Giving Makes Sense

Lifetime giving makes sense when it is more beneficial to support your loved ones today rather than waiting until an estate transfer. It’s especially powerful if you’d like future appreciation to grow in your children’s or grandchildren’s names, if you’re hoping to reduce the size of a taxable estate, or if you are in a special position to reduce capital gains.

Gifts made during your lifetime can help family members buy a first home, pay down student loans, start a business, cover medical expenses, or invest for their future—and you get the joy of watching that gift make a difference.

Some gifts never trigger tax rules at all, no matter the size—such as paying tuition directly to a school, paying medical bills directly to a provider, donating to a qualified charity, or giving to a U.S.-citizen spouse. These bypass both the annual exclusion and your lifetime gift tax exemption entirely. 

For everything else, it’s wise to consider an overall plan, so your giving aligns with your goals and minimizes unnecessary tax exposure.

Advanced Lifetime Giving Strategy: Sharing Capital Gains Exclusions (Section 121)

The IRS’s Section 121 exclusion can be a real gift for families because every qualifying owner of a primary residence can exclude up to $250,000 of capital gain from taxes (or $500,000 for married couples). In the right circumstances, multiple co-owners of a single home can each use their own exclusion, significantly reducing or even eliminating capital gains tax.

Here’s how a homeowner planning to sell their home in the near future could think about using Section 121 in conjunction with a lifetime gift to their children:

1. A homeowner could add their resident adult children to the title of their home as co-owners.
   This is a lifetime gift of property, which may require filing Form 709—but usually no gift tax is owed because it falls within the lifetime exemption. The transfer would also require a proper real estate deed and documentation for recording.
   
2. Each new co-owner must use the property as their primary residence for at least two of the five years before it’s sold. This must be real, provable occupancy (DMV, voter registration, paperwork, etc.).
   
3. Once everyone meets the two-year rule, the home can be sold, and each co-owner may then qualify to exclude up to $250,000 of their share of the gain, dramatically reducing the family’s overall capital gains tax.

This can be a powerful way to divide a large gain into smaller, tax-free portions—but only when everyone truly lives in the home and the timing and necessary paperwork are correct. Adding children to a title right before selling doesn’t work. 

Before applying Section 121 or any lifetime gifting technique to real estate, consult with an attorney to ensure full compliance with applicable laws. 

For residents of California, it’s especially important to consult with an estate planning attorney, as there are state-level considerations that can significantly impact the tax picture. So let’s shift briefly to a California-specific lens and outline what homeowners there must keep in mind.

California Corner: Unique Considerations for Lifetime Gifting

If you own a home in California, the lifetime gifting of real estate can be especially complicated. CA homes tend to skyrocket in value, which means larger capital gains to manage and bigger consequences when deciding between gifting a property now or letting family inherit it later.

And then there’s Prop 19. A lifetime gift of your home can trigger a full property-tax reassessment, often raising annual taxes dramatically—unless the child moves in and meets strict residency rules. Plus, unlike inheritances, lifetime gifts don’t get a step-up in basis, so your loved ones may face bigger capital gains when they sell.

For these reasons, Californians sometimes explore unique planning options, like splitting ownership among family members or coordinating multiple Section 121 exclusions—but these are complex and not DIY strategies. Lifetime real estate gifts can work in California; they can also backfire. It’s best to seek tailored advice from a CA estate planning attorney before making any transfer.

Is Significant Lifetime Giving Right for Me?

There’s no one-size-fits-all answer. Giving during your lifetime can be wonderful if you want to support loved ones now or move future appreciation out of your estate. But leaving assets at death can offer major tax benefits—especially for highly appreciated property—because heirs get a step-up in basis and often avoid capital gains. 

In simple terms: gift cash if you want to help today; let appreciated assets pass at death for maximum tax efficiency. The best approach depends on your full estate plan.

Is the Lifetime Gift Tax Exclusion Changing and Related FAQs

Closing Thoughts on Lifetime Giving and the Lifetime Gift Tax Exclusion

Lifetime giving isn’t just a tax strategy— it can be an action of wisdom. It may be a way to offer support today while also laying a thoughtful foundation for tomorrow. And whether your gifts involve cash, real estate, or a share of your home, it’s important to understand how the rules work.

That’s where a tax attorney like me comes in. If you’re considering helping your children with housing, transferring property during life, or using the annual exclusion more intentionally, I’d be happy to guide you through the options and the potential tax impact.

At Gammon & Grange, we help families give generously and plan wisely—so your gifts truly benefit the people you love.

This blog provides general information about tax and related topics in California and is for informational purposes only. It is not legal advice, does not create an attorney-client relationship, and should not be relied upon to make decisions about your specific situation. Readers should consult an attorney or other appropriate professional for advice tailored to their particular facts and circumstances.

Tax laws and thresholds change, and application of the law depends on individual facts; for guidance on your situation, please confirm current figures and seek personalized legal counsel from a licensed professional in your jurisdiction.