Earlier this month, The Wall Street Journal published How to Give Your Kids Money for a House Without Things Getting Weird. And it was a useful reminder of the tax and other implications of buying one's children a home outright or chipping in toward the down payment.
The information in this article is provided for educational purposes only and should not be considered tax advice. Consult a qualified tax professional before making any tax-related decisions.
Who's Affected by Gift Taxes?
In 2026, all Americans are allowed a lifetime federal estate and gift tax exemption of $15 million per person or $30 million per married couple, according to the IRS. And donations to charities and political causes, as well as gifts between spouses, are excluded from those lifetime caps.
To be clear, that means any American can give or bequeath (leave in a will) up to $15 million during their lifetime and on their death without incurring a federal tax liability. Key Wealth says only Connecticut has a standalone gift tax, which, perhaps not coincidentally, has a $15 million lifetime cap. However, five states impose an inheritance tax, and 12 states plus D.C. have state estate taxes.
One might deduce that a $15 million cap on gifts and bequests is going to affect the total tax bills of only those leaving significant inheritances or those in or near the top 1% of earners. That $15 million exclusion was hiked to that level in the (arguably misnamed) Working Families Tax Cuts Bill of 2025.
"The gift tax applies to the transfer by gift of any type of property," says the IRS. "You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift."
It's worth noting that a potential gift tax liability can arise only for the donor — never the recipient.
Tax Rules for Gifts That Apply Annually
If one gives more than $19,000 in a single tax year to an individual, one must declare it using IRS Form 709. However, there is no immediate tax liability on the gift unless one has already reached the $15 million cap. The IRS simply knocks the applicable value of the gift off that lifetime limit. Gifts under the $19,000 annual exclusion do not count toward the giver's lifetime limit.
Another option is to structure the financial assistance as a loan rather than an outright gift.
"To avoid gift tax rules, loans over $10,000 must charge at least the minimum federal interest rate (in October 2026, it is about 5% for loans longer than nine years; about 4.5% for loans three to nine years)," says The Journal. "This rate is set monthly by the IRS and depends on the loan length and when interest is paid." And it's a lot lower than current mortgage rates.
Providing one makes no other gifts to the borrower, one can then forgive the loan at a rate of $19,000 a year, which will reduce each year the sum upon which interest is payable.
Contributing to Down Payments
Not many of us can afford to fund the outright purchase of a home for one of our offspring. Still, they may wish to help out with a contribution to the down payment.
The National Association of Realtors’ 2025 Profile of Home Buyers and Sellers reports 22% of first-time buyers reported using a gift or loan from a friend or relative for their down payment to purchase their home.
Read Everything You Should Know About Down Payment Gift Rules for all the details. But, in brief, gifts are fine with mortgage lenders, provided each donor writes a letter confirming that the money really is a no-strings gift and not a loan in disguise. The lender will also want to see bank statements showing the transfer and the funds' provenance.
Co-signing the Mortgage
If an adult child is struggling to qualify for a mortgage, a relative or friend with good credit and sound finances can help out by co-signing the loan. The benefit to the borrower is huge. But the possible risks to the co-signer are scary.
So, read The Risks and Benefits of Co-Signing a Mortgage before committing. Co-signers risk seeing their borrowing capacities shrink even if everything goes well. And they could face a world of financial and emotional pain if things go badly.
Money Is Thicker Than Blood
The more one trusts and loves one's children, the more important it is to protect the relationship by avoiding misunderstandings. When large sums are involved, it's worth paying a lawyer to draw up a binding agreement that all parties will sign. A lawyer can also head off disputes that might arise if either the kid and spouse or mom and dad later divorce.
Even when smaller amounts are at stake, a written agreement that lays out each side's rights and obligations can be helpful. It really does have a lot more to do with clarity than trust.
"Informal arrangements can create a lot of room for people to remember the same conversation or transactions differently over time," Timothy Burke, chief executive of National Family Mortgage, told The Journal.
It's also important for parents to observe boundaries. It's natural for them to want to guide their children away from costly mistakes. But it can be harmful if one fails to avoid the appearance of wielding one's financial power to actually choose the home and control the adult's life. Gently does it.
Handled well, helping an adult child as best one can to achieve the dream of homeownership is a wonderful gift that can strengthen an already beautiful bond. But it's also important to protect one's own financial position. The goal is to give your children a financial head start without putting your own future at risk.
