I Want to Give My Grandchild $15,000. Is It Taxable?

Gifts beyond the annual limit will cut into your lifetime estate tax exclusion. “When the lifetime exemption is used up, then you start paying taxes on gifts,” says Samuel Phillipson, a partner at PFK O’Connor Davies, a national accounting and tax firm.

Let’s say you give your grandchild $25,000 in 2024. The first $18,000 is covered by the annual exemption, but the remaining $7,000 must be reported on your tax return and reduces your lifetime gift tax limit; if it's the first time you've exceeded the annual limit, you'll have $13.603 million in lifetime gift tax exemptions left.

What other ways can I avoid paying gift taxes?

There are a few special cases where you can gift above the annual limit without paying gift taxes.

Paying medical expenses and college tuition. If you want to help your grandchild by covering college tuition or medical bills, you can do so without being subject to the annual gift tax exclusion. The caveat: You must pay these expenses directly to the school or health care provider.

Superfunding a 529 plan. Another way to give generously without owing Uncle Sam is by contributing to your grandchild’s education through a 529 college savings plan. The tax code offers an option called “superfunding,” which allows you to frontload a 529 plan with up to five years’ worth of annual gifts in one go.

That means in 2024, you can contribute up to $90,000 ($18,000 times five) to your grandchild’s 529 plan without being taxed on the gift. You must report the gift on your tax return and check a box on Form 709 indicating you want to spread it evenly over five years. One drawback: You can’t make any other gifts to the recipient for the next five years.

Donating to charities. Giving to friends and family might raise questions about gift taxes, but gifts to charities approved by the IRS are a different story. These gifts aren’t subject to taxes, regardless of the amount.

If you itemize instead of claiming the standard deduction, charitable contributions also offer the benefit of a tax deduction. To qualify, make sure the charity is IRS-approved using the agency’s Tax Exempt Organization Search Tool and keep detailed records of your contributions.

Other considerations when offering gifts to grandchildren

While gifting $15,000 or more to your grandchild is a generous way to provide financial support, there are a few things to consider before you cut a check:

Cash vs. assets. What form should the gift take? If your grandchild is young, they may feel inclined to spend cash quickly. Gifting assets like securities, bonds or a partial interest in real estate can offer more lasting benefits. 

On the other hand, if your grandchild is older and financially responsible, giving them cash could help them cover immediate needs like car payments or other living expenses.

Capital gains taxes. Before gifting appreciated assets, like shares of stock that have increased in value since you bought them, think about the potential for capital gains taxes.

When you give an asset, the recipient inherits your original cost basis — the amount you paid to purchase the asset, plus any additional costs like broker fees or commissions. Say you bought a stock for $1,000 and it’s now worth $15,000. You gift the shares to your grandchild, who sells them. Your grandchild would have to pay capital gains taxes on the difference between what you originally paid and what they sold the shares for —in this example, $14,000.

Their tax bill would depend on their total taxable income. Tax rates on long-term capital gains can be as high as 20 percent, meaning your grandchild could owe up to $2,800 (20 percent of $14,000) on the sale of the stocks you gave them.

Your finances. Finally, consider how the gift fits into your own financial plan. You might want to give generously, but make sure it won’t compromise your financial security. Consider your long-term needs for retirement, health care and other expenses before making large gifts.