How Much Is Gift Tax in California?
Does California have a gift tax? Get clear answers on state and federal rules, plus key California considerations for gifting.
Understanding gift tax can be complex, especially with differing federal and state regulations. This article clarifies the gift tax landscape for Californians, outlining federal provisions and state-level considerations for significant gifts.
California Gift Tax Status
California does not impose its own state-level gift tax. Consequently, individuals making gifts within California or by California residents are primarily concerned with federal gift tax laws.
Understanding Federal Gift Tax
A “gift” for federal tax purposes involves the transfer of money or property to another individual without receiving something of at least equal value in return. The responsibility for paying any federal gift tax generally falls on the person making the gift, known as the donor, not the recipient.
The federal system includes an annual gift tax exclusion. For 2025, this annual exclusion is $19,000 per recipient. If married, both spouses can each give $19,000 to the same person, allowing a combined gift of $38,000 per recipient annually.
Beyond the annual exclusion, the federal system provides a lifetime gift tax exemption. This is the total amount an individual can gift over their lifetime, or leave at death, before any federal gift or estate tax becomes due. For 2025, the lifetime exemption is $13.99 million per individual, meaning a married couple can collectively shield $27.98 million from federal gift and estate taxes. This expanded exemption amount is scheduled to revert to approximately half its value at the end of 2025.
Certain transfers are not considered taxable gifts. These include direct payments for tuition or medical expenses made to an educational institution or healthcare provider on behalf of another individual. Gifts to a U.S. citizen spouse are unlimited and do not trigger gift tax. Gifts to qualified charitable organizations or political organizations fall outside the scope of taxable gifts.
Calculating Federal Gift Tax and Reporting
When a gift exceeds the annual exclusion amount for a particular recipient, the excess amount begins to reduce the donor’s lifetime gift tax exemption. This reduction occurs even if no gift tax is immediately owed. For instance, if an individual gives $50,000 to a person in 2025, the $31,000 exceeding the $19,000 annual exclusion will reduce their $13.99 million lifetime exemption.
The federal gift and estate tax systems are unified, meaning the lifetime exemption is a single amount that applies to both gifts made during life and assets transferred at death. Actual federal gift tax is only incurred once the cumulative taxable gifts over a lifetime exceed the lifetime exemption. If tax becomes due, rates can range from 18% to 40% on the portion exceeding the exemption.
A federal gift tax return, IRS Form 709, must be filed by the donor if they make a gift to any one person (other than their U.S. citizen spouse) that exceeds the annual exclusion amount. This form is also required if spouses elect to “split” gifts to a third party or if gifts of “future interests” are made. Form 709 is an informational return used by the IRS to track the use of an individual’s lifetime exemption, even if no tax is owed.
The Form 709 filing deadline is April 15 of the year following the gift. An extension for filing a federal income tax return (Form 1040) extends the Form 709 deadline. When completing Form 709, donors must provide information such as their details, the recipient’s information, a description and valuation date of the gift, and any applicable deductions or exclusions. Form 709 cannot currently be filed electronically and must be submitted as a paper return.
Other California Considerations for Gifts
Certain state-level implications can arise when making or receiving gifts in California, particularly concerning real estate and long-term care planning. Gifting real estate may trigger property tax reassessment. Proposition 19, enacted in California, significantly altered property tax rules for intergenerational transfers of primary residences, limiting the previously broader parent-child and grandparent-grandchild exclusions. Many transfers of primary residences, even between direct family members, can now lead to a property tax reassessment for the recipient.
For recipients of gifted property in California, the concept of “carryover basis” applies for state income tax purposes. This means the recipient’s cost basis for the gifted asset is the same as the donor’s basis. If the recipient later sells the gifted property, any capital gains will be calculated based on this carryover basis, potentially leading to a higher taxable gain compared to inheriting the property with a “stepped-up” basis.
Gifts can impact Medi-Cal (California’s Medicaid program) eligibility for long-term care. Medi-Cal imposes a “look-back period” during which transfers of assets for less than fair market value can result in a period of ineligibility for nursing home benefits. In California, this look-back period is 30 months. Gifting assets during this period, even if below federal gift tax thresholds, can lead to penalties calculated by dividing the gifted amount by the average monthly cost of nursing home care.