The $19,000 Federal Annual Exclusion for 2026

Each person can give up to $19,000 to any number of recipients in 2026 without filing a gift tax return. A married couple in LA who elects gift splitting on Form 709 can give $38,000 per recipient. That’s enough to transfer meaningful amounts to children, grandchildren, or anyone else without touching the lifetime exemption.

If you go above $19,000 to any single person in a calendar year, you need to file Form 709 with your federal return. The excess reduces your lifetime gift and estate tax exemption, which for 2026 stands at approximately $13.61 million per person.

Why California’s No Gift Tax Isn’t the Full Picture

California repealed its inheritance and gift tax decades ago. No state-level gift tax, no state estate tax, no inheritance tax. For pure gifting, that makes Los Angeles one of the more favorable places to be a donor. Compare that with New York, where gifts made within three years of death get pulled back into the state taxable estate.

But California’s 13.3% top income tax rate creates a different kind of planning consideration. When you gift appreciated assets instead of cash, the recipient inherits your cost basis. If your child sells those shares of Apple stock you bought in 2010, they’ll owe federal capital gains tax plus California’s full income tax rate on the gain. No reduced capital gains rate in California.

That’s a real cost. Sometimes it’s better to hold the appreciated asset until death, when your heirs get a stepped-up basis and can sell with zero gain. Other times, gifting now and paying the tax makes sense because the future growth leaves your estate. The right answer depends on the numbers.

Community Property and Gift Splitting in California

California is a community property state. Assets earned during a marriage belong equally to both spouses. This matters for gifting because each spouse already owns half of community property, so a gift from community funds is automatically split between spouses for gift tax purposes.

That simplifies things in some ways. A $38,000 gift from a joint account is treated as $19,000 from each spouse without needing to file Form 709 for gift splitting. But if one spouse has significant separate property (inherited assets, for example), tracking which gifts come from community versus separate property becomes important for tax reporting.

Gifting Strategies That Work Well in Los Angeles

Real estate is the elephant in every LA estate plan. A home purchased in the 1990s for $400,000 that’s now worth $2.5 million creates a massive unrealized capital gain. Gifting that property during life transfers your low basis and triggers Proposition 19 reassessment issues for property tax. Holding it until death provides a stepped-up basis and, if transferred to a child who uses it as a primary residence, can preserve the property tax base under Prop 19.

Cash gifts and liquid investments are more straightforward. Annual exclusion gifts of $19,000 per person per year add up fast, particularly for families with multiple children and grandchildren. A couple with three kids and six grandchildren could move $342,000 per year out of their estate without filing a single gift tax return.

• Direct tuition payments — pay UCLA or USC directly and it doesn’t count as a gift at all, no dollar limit
• Direct medical payments — same rule, pay the hospital or insurer directly
• 529 plan superfunding — contribute $95,000 at once (five years of annual exclusions) per beneficiary
• Irrevocable life insurance trusts — remove life insurance proceeds from your taxable estate entirely

The 2026 Exemption and What Happens Next

The $13.61 million lifetime exemption reflects the doubled amount under the Tax Cuts and Jobs Act. Provisions from that law are set to sunset, which would cut the exemption roughly in half. The IRS has said it won’t claw back gifts made while the higher exemption was in effect, so there’s a real window of opportunity here.

For LA residents with estates above $7 million, 2026 could be the last year to make large gifts under the current rules. Waiting costs nothing if Congress extends the higher exemption, but missing the window costs a lot if they don’t. That’s a risk assessment, not a prediction, and it’s one worth discussing with a CPA who understands the full picture.