The Facts About Giving a Gift: How the Gift Tax Works When Using Gift Funds to Buy a Home

Gift funds can be crucial in helping individuals achieve the dream of homeownership. However, understanding how gift taxes work is essential for donors and recipients to avoid potential complications. Curated by Raleigh mortgage broker Logan Martini with the Martini Mortgage Group, this guide breaks down the key facts about gift taxes, including annual and lifetime exclusions, gifting rules, and essential tips for homebuyers.

Annual Gift Tax Exclusion: $19,000 in 2025

The annual gift tax exclusion allows individuals to gift up to $19,000 per recipient per year without incurring a gift tax. This is an increase from $18,000 in 2024 and applies to each recipient individually.

Examples of How It Works:

• You can gift $19,000 each to multiple individuals—whether friends, family members, or even colleagues—without triggering a gift tax.
• The exclusion resets annually, meaning you can repeat this process in 2026 and beyond.

This exclusion provides flexibility for families and loved ones who want to contribute toward down payments or other homebuying expenses without worrying about tax implications.

Lifetime Gift Tax Exclusion: $13,990,000 in 2025

In addition to the annual exclusion, there is a lifetime gift tax exclusion of $13.99 million per individual in 2025. This exclusion is tied to estate taxes, meaning any amount used during your lifetime reduces your estate tax exclusion by the same amount.

Examples of How It Works:

If you want to gift $119,000 to help a loved one buy a home:

• $19,000 is covered by the annual exclusion.
• The remaining $100,000 is deducted from your lifetime exclusion, leaving you with $13.89 million remaining.

Critical Points to Remember:

• The lifetime exclusion is a one-time allowance; it does not replenish.
• Married couples can combine their exclusions, resulting in a total of $27.98 million.
• If your estate is valued below $13.99 million (or $27.98 million for couples), using this exclusion won’t affect your heirs.

Key Rules for Gifting Funds

1. No Relationship Requirement

You don’t need to be related to someone to gift them money. The annual and lifetime exclusions apply to gifts for anyone—friends, colleagues, or even strangers.

2. Gift Recipients Don’t Pay Taxes

Gift taxes are the responsibility of the giver, not the recipient. This makes gifting a highly effective way to provide financial support without adding a tax burden to the recipient.

3. Paperwork Requirements

• Gifts under the $19,000 annual exclusion typically require no IRS reporting.
• For gifts exceeding this limit, file IRS Form 709 to document the gift and the portion of your lifetime exclusion used.

4. Separate Checks for Multiple Gifts

If multiple people (e.g., parents) contribute to a gift, each must write a separate check. This simplifies documentation for IRS reporting and mortgage underwriting. Always consult with a mortgage expert, such as Logan Martini, to ensure proper compliance.

Gifting Funds for a Home Purchase: Mortgage Considerations

When using gift funds for a home purchase, mortgage lenders often have specific requirements to ensure compliance:

• Sourcing Funds: Lenders may require documentation to verify where the funds originated.
• Gift Letters: A letter stating the funds are a gift—not a loan—may be required.

Failure to meet these requirements could delay or jeopardize your loan approval. Consulting with an experienced mortgage professional like Logan Martini at Martini Mortgage Group can help you navigate these nuances seamlessly.

Why the Gift Tax Is a Non-Issue for Most People

Thanks to the combination of the $19,000 annual exclusion and the $13.99 million lifetime exclusion, most individuals will never face gift tax liabilities. Even for high-net-worth individuals, strategic gifting within these limits enables substantial wealth transfers without incurring taxes.

For married couples, the joint lifetime exclusion of $27.98 million makes gift taxes even less of a concern. As long as gifts are properly documented and reported, the system offers a generous framework for supporting loved ones.

Ready to Use Gift Funds for a Home? Let Martini Mortgage Group Help

Using gift funds for a home purchase can be transformative, but it’s important to follow the proper steps to ensure compliance with IRS and lender requirements. At Martini Mortgage Group, Logan Martini and his team specialize in helping families in Raleigh, NC, and beyond achieve homeownership while navigating the complexities of gift fund usage.

Whether you’re a donor or a recipient, our team is here to guide you through the process with personalized advice and expertise. Contact Martini Mortgage Group today to start your journey toward a seamless and successful homebuying experience.

DISCLAIMER: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Please consult a qualified tax advisor for guidance specific to your situation. For further details, refer to IRS Publication 559.