Gift Money for a Home Purchase: What’s “Untaxable,” Who Owes Tax, and What Actually Delays Closings

Gift funds are one of the cleanest ways to help someone buy a home. They’re also one of the most misunderstood.

Many buyers and plenty of realtors will hear “gift limit” and assume:

• The buyer will get taxed if they receive money, or
• Any gift above the limit triggers an immediate tax bill

Neither is usually true.

Let’s break this down in plain English: the gift amount, who’s responsible for tax liability, when a gift tax return is needed, and the mortgage documentation traps that cause last-minute underwriting drama.

1) The “untaxable gift limit” is really the annual exclusion

For 2026, the annual gift tax exclusion is $19,000 per giver, per recipient, per year. 

That means:

• One parent can gift one buyer up to $19,000 in 2026 with no gift tax return required (in most simple cases).
• Two parents can gift that same buyer up to $38,000 total (each giving $19,000). 
• If the buyer is married, each parent can gift to each spouse (because the exclusion is per recipient), potentially increasing the total.

Important nuance: this limit is about gift tax reporting rules. It is not a “you can’t gift more than this” limit.

You can gift more. You just need to understand what happens next.

2) Who pays gift tax: usually the giver, not the buyer

Here’s the rule of thumb:

Gift tax rules are generally a donor problem, not a recipient problem.
The person giving the money is typically responsible for any gift tax and for filing any required gift tax return.

Most buyers receiving gift money do not pay income tax on that gift.

So if Mom and Dad gift funds for down payment/closing costs, the buyer usually isn’t the one getting a tax bill from the IRS.

3) “Over $19,000” usually means “reporting,” not “tax due”

This is where people panic for no reason.

If a giver exceeds the annual exclusion (over $19,000 to one person in 2026), that does not automatically mean they owe gift tax.

It often means the giver may need to file IRS Form 709 (United States Gift Tax Return) to report the gift.

And then, typically, the “excess” amount reduces the giver’s lifetime estate/gift exemption (more on that next).

4) The lifetime estate/gift exemption is very high

For 2026, the IRS says the basic exclusion amount (the lifetime estate and gift tax exemption) is $15,000,000 per person (under current law referenced by the IRS).

Translation: most families won’t owe federal gift tax even if they gift well above $19,000 in a year, because they’re still nowhere near the lifetime limit.

Again: not tax advice. But this is why, in practice, “gift tax” is usually a paperwork issue, not a cash payment issue.

5) Gift splitting: how married donors often give more (legitimately)

Married couples can often effectively double the annual exclusion by splitting gifts. The IRS explains gift splitting concepts and points to filing requirements (Form 709) when spouses elect to treat gifts as split.

Practical example:

• Married parents want to gift a buyer $38,000.
• That can often be structured as $19,000 (2026 rules) from each spouse to the same recipient.

If you’re trying to be precise with gift splitting (especially when one spouse is the “actual” owner of the funds), a tax professional should weigh in.

6) A smart side note: tuition and medical payments can be different

This isn’t directly “home purchase,” but it matters in family planning.

The IRS recognizes exclusions for certain tuition or medical expenses paid for someone, generally when paid in the correct way (often directly to the provider).

Why mention it here? Because families sometimes try to “save” annual exclusion room by routing support strategically. If a family is doing multiple forms of help in the same year (home + tuition + medical), a CPA can help coordinate.

7) The mortgage reality: IRS rules don’t close loans, documentation does

Here’s the part every realtor has lived through:

A gift can be perfectly fine under IRS rules and still slow down a mortgage file if the documentation is messy.

Most lending guidelines want some combination of:

• A properly completed gift letter
• Evidence the donor had the funds (in many cases)
• A clear paper trail showing the transfer into the buyer’s account or to the closing agent

The big killers:

• Cash deposits that can’t be sourced cleanly
• Last-minute transfers with no paper trail
• “It’s a loan but we’ll call it a gift” (this is where underwriting gets allergic)

8) Gift letters: what they generally need to say

Most gift letters (across loan types) cover:

• Donor name and contact details
• Relationship to the buyer
• Gift amount
• Address of the property (or reference to transaction)
• Statement that it’s a gift and no repayment is required/expected
• Signatures and dates

9) Gift of equity: another option families overlook

Sometimes the “gift” isn’t cash, it’s equity. A gift of equity happens when a family member sells a home to the buyer for less than the home’s market value, and the difference is treated as the buyer’s “gift.” Instead of wiring cash for a down payment, the seller is essentially giving the buyer part of the home’s value.

This can be a powerful tool when structured correctly, and a total mess when everyone “wings it.”

10) Common blind spots that create avoidable stress

If you’re a buyer, agent, or donor, these are the tripwires:

• Assuming the buyer will be taxed for receiving gift funds (usually not how gift tax works).
• Thinking “over $19,000” means “tax is owed.” Often it means a Form 709 filing requirement and/or a reduction of the lifetime exemption.
• Not planning the transfer timeline. Underwriting wants a clean trail; last-minute wires invite extra questions and cause delays.
• Confusing a gift with a loan. If repayment is expected, it’s not a gift (and it can create DTI/undisclosed debt issues).
• Multiple donors with inconsistent stories. The more moving pieces, the more important clear documentation becomes.

Bottom line

Gift funds can absolutely help buyers cover down payment and closing costs. The annual 2026 exclusion is $19,000 per giver per recipient, but larger gifts are often still fine—they may just change the tax reporting requirements, and the giver is typically the party responsible for any gift tax considerations. The IRS side is usually less scary than people think. The mortgage documentation side is what actually breaks timelines.

Feel free to reach out to me at 312-296-4175 or email me at connect@borislending.com if you have any questions regarding gift funds. I’m here to help you navigate the process and make the right decisions. I lend in all 50 states and I am never too busy for your referrals!!