How Does the Gift Tax Work When Using Gift Funds to Buy a Home?

Nov 10, 2025 | News

💡 What Is the Gift Tax and Why It Matters

Many homebuyers get help from family or friends when buying a home. But did you know that large gifts of money can trigger something called the “gift tax”? Don’t worry — it’s not as scary as it sounds. The federal government allows you to give away quite a bit before any taxes even come into play. Let’s break down how it really works and what you should know if you’re planning to use gift funds for your home purchase.

 

🎁 The $19,000 Annual Gift Exclusion

Every person can give up to $19,000 per year to anyone without paying gift tax. This is called the annual exclusion, and it resets every January.
For example, a parent can gift a child $19,000 this year, then another $19,000 next year — all tax-free. And if both parents want to help, they can each give $19,000 for a total of $38,000 in one year.

👉 Tip: These funds must come directly from the person giving the gift. Each check should be from the specific donor, not a joint account, unless both people are gifting.

 

💰 The $13.99 Million Lifetime Exclusion

Here’s where it gets interesting. In addition to the annual limit, each person also has a lifetime exclusion of $13.99 million (up from $13.61M in 2024).

Let’s say someone gives $119,000 to help with a down payment. The first $19,000 comes from the annual exclusion. The remaining $100,000 comes out of their lifetime exclusion.

That lifetime bucket doesn’t reset — it’s shared with your estate tax allowance. So using it now just means there’s a little less available when your estate is passed down later.

For most people, this isn’t an issue. Unless your total estate exceeds $13.99 million (or $27.98 million for a married couple), you’ll never owe gift or estate tax at all.

 

👩‍❤️‍👨 Married Couples Can Double Up

If you’re married, your combined lifetime exclusion is $27.98 million in 2025. That means a couple could gift their entire estate to their children or anyone else — without any gift or estate tax due.

This rule makes gift taxes a non-issue for nearly all families. However, large gifts that use the lifetime exclusion still need to be reported to the IRS on a gift tax return (Form 709). No tax is due — it’s just for recordkeeping.

 

📋 Additional Gift Fund Rules for Homebuyers

  • No Tax for the Recipient: The person receiving the gift doesn’t pay tax on it.
  • Use Separate Checks: Each donor should write their own check.
  • Consult Your Loan Officer: Gift funds must be properly “sourced” during the mortgage process, so talk to your lender before transferring funds.

 

🏠 Final Thoughts

Using gift funds to buy a home is common and completely allowed — as long as it’s done correctly. With smart planning, most people can give and receive large gifts without ever owing a dime in taxes.

If you’re thinking about using or receiving gift funds for your next home purchase, reach out. I’ll help you structure it properly so your mortgage process goes smoothly and you stay compliant with IRS and lender rules.