What Are the Tax Implications of Gifting a Property? + FAQs

Gifting a property is usually tax-free at the moment of transfer: the recipient owes no income tax, and the donor owes no gift tax unless lifetime gifts top $15,000,000 (2026) or $15,480,000 (2027). The real cost comes later, because the recipient takes your old cost basis and can face a large capital gains bill when they sell. Internal Revenue Service (IRS) Statistics of Income data show that only a small fraction of Form 709 filers ever owe gift tax, yet a real estate gift still has traps if you skip a step.

Federal Gift Tax Law: How the IRS Treats Property Gifts

Under federal law, a gift is any transfer of property where you get back less than full market value. Deeding your house, condo or land to anyone, family included, without being paid its fair market value (FMV) is a taxable gift. Most donors still pay nothing.

The annual exclusion lets you give up to $19,000 per recipient for 2026 and $20,000 per recipient for 2027 with no gift tax and no filing. The 2027 amounts come from Rev. Proc. 2026-35, summarized in the IRS release on 2027 inflation adjustments. Real estate is almost always worth more than that.

Gifts above the exclusion go on Form 709. Filing does not mean you owe tax. The return tracks how much lifetime exemption you have used. Say you gift a $300,000 house to your daughter in 2026. The annual exclusion covers the first $19,000, and the other $281,000 is applied against your lifetime exemption. No tax is due. A gift of property also does nothing to reduce your taxable income for the year; the donor gets no deduction unless the gift goes to charity.

The lifetime exemption is one unified credit for both gifts and your estate at death. Each person gets the IRS basic exclusion amount shown in the table below, and a married couple can shelter twice that with planning. Whatever you use on gifts is no longer available for your estate. A completed gift leaves your estate, so the house is not taxed again when you die. It simply draws from the same pool. Above the exemption, the donor pays gift tax at rates up to 40% for 2026 and 2027.

Form 709 is due April 15 of the year after the gift. Extending your income tax return with Form 4868 also extends Form 709, or you can file Form 8892. Get a qualified appraisal as of the gift date, since the IRS expects an accurate value.

Gift splitting lets a married couple treat a gift by either spouse to someone else as if each gave half. Both spouses must consent on Form 709, and each generally files their own return.

Some transfers escape gift tax no matter how large:

• Gifts to a spouse who is a U.S. citizen are unlimited.
• Gifts to a non-citizen spouse are tax-free up to $194,000 for 2026 and $201,000 for 2027.
• Property given to a qualified charity is exempt and may earn an income tax deduction.
• Tuition or medical bills paid directly to the school or provider are not gifts.

For a property gift, the usual result is simple: file the return if required, apply part of your lifetime exemption, and pay $0 in gift tax. The real tax cost tends to show up later as capital gains, which we cover next.

2026 vs. 2027 Gift and Estate Tax Figures at a Glance

Item	2026	2027
Annual exclusion per recipient	$19,000	$20,000
Annual exclusion with gift splitting (married couple)	$38,000	$40,000
Basic exclusion (lifetime gift and estate exemption)	$15,000,000	$15,480,000
Annual limit for gifts to a non-citizen spouse	$194,000	$201,000
Top gift and estate tax rate	40%	40%
Form 709 due date for that year's gifts	April 15, 2027	April 15, 2028

The 2027 figures come from Rev. Proc. 2026-35, which the IRS released in November 2026. The 2026 figures are on the IRS estate and gift tax page. Always match the figure to the year the gift is made.

Did the Lifetime Exemption Drop in 2026? What the One Big Beautiful Bill Act Changed

No. The exemption did not drop in 2026. The scheduled cut to roughly half never took effect.

The One Big Beautiful Bill Act (P.L. 119-21) rewrote IRC §2010(c)(3). It set a permanent base for the lifetime exemption and indexed it for inflation starting in 2027, with no built-in expiration date.

Two results follow. First, large gifts made earlier to lock in the old exemption are protected by the IRS anti-clawback regulation (Treas. Reg. §20.2010-1(c)). The exemption used on those gifts is not taken back at death, even if the exemption later falls. Second, gifting a house is once again a decision about capital gains, control and family needs, not a race against a deadline.

Congress can still change the law. If your estate is anywhere near eight figures, review your plan every few years.

No Income Tax on the Gift, But Beware Capital Gains: Carryover Basis

The gift itself is not income. If you receive a house or land as a gift, you do not report its value as income. The donor gets no income tax deduction unless the gift goes to charity. The catch is that the property's cost basis moves to the new owner.

Basis is what the donor paid, plus improvements and minus any depreciation on a rental. With a gift, you take the donor's basis (carryover basis), so all the growth during the donor's ownership rides along to you. If your mom bought a house for $100,000 and it is worth $400,000 when she gifts it, your basis is $100,000. Sell for $400,000 and you have a $300,000 capital gain. The gain is long-term because your holding period includes hers under IRC §1223(2). For 2026, federal long-term rates are 0%, 15% or 20% depending on taxable income, and higher earners also owe the 3.8% net investment income tax. Add state tax, and the bill can reach tens of thousands of dollars.

Inherited property is different. It gets a stepped-up basis equal to market value at death, or a stepped-down basis if values fell. Had your mom left you the house, your basis would be $400,000, and a sale at that price would show no gain.

Example: Gift vs. Inheritance

John bought a rental for $150,000 twenty years ago. It is now worth $500,000, and he gifts it to his daughter Lisa in 2026. John files Form 709. After the 2026 annual exclusion, $481,000 is applied against his lifetime exemption, and no gift tax is due. Lisa's basis is $150,000. She later sells for $520,000, so her gain is $370,000. At the 2026 federal rate of 15%, she owes about $55,500 plus state tax. Part of the gain may be taxed at up to 25% as unrecaptured §1250 gain because of John's depreciation. The same rules apply to gifting commercial property such as a shop or office, where depreciation recapture is often larger.

If John instead keeps the rental until he dies, when it is worth $520,000, Lisa inherits it with a $520,000 basis. She sells for $520,000 and owes nothing. The rules for selling inherited rentals follow the same logic: the step-up wipes out the old gain and the old depreciation. Gifting kept the property out of John's estate, which helps only if his estate would have been taxable.

When Gifting Still Works

Carryover basis costs little if the property has not grown much in value. If the recipient keeps it for life, the gain may never be taxed. And if the donor's estate may exceed the lifetime exemption, gifting moves future growth away from the 40% estate tax (2026 rate).

The recipient can also use the home sale exclusion under IRC §121 after living in the home as a main residence for 2 of the 5 years before the sale. For 2026 it shields $250,000 of gain if single or $500,000 if married filing jointly. If Lisa moved in for two years, she could shield $250,000 of her $370,000 gain. That is why gifting a home your child will live in often beats gifting a rental.

One anti-abuse rule applies. Under IRC §1014(e), if you gift appreciated property to someone who dies within one year and it passes back to you or your spouse, there is no step-up.

When the Property Has Lost Value: The Dual-Basis Rule and Gift Tax Basis Adjustment

Not every gifted property has gone up in value. If the fair market value on the gift date is below the donor's basis, IRC §1015(a) gives the recipient two basis numbers. Use the donor's higher basis to figure a gain, and the lower fair market value to figure a loss. If the sale price falls between them, there is no gain and no loss.

Example: your uncle paid $360,000 for a condo that is worth $310,000 when he gifts it to you in 2026.

• Sell for $390,000: a $30,000 gain ($390,000 minus the $360,000 carryover basis).
• Sell for $280,000: a $30,000 loss ($280,000 minus the $310,000 value at the gift). A personal home gives no deductible loss, but the rule matters for rentals and land.
• Sell for $335,000: no gain and no loss.

If the donor actually paid gift tax, IRC §1015(d) lets the recipient add part of that tax to basis. The increase equals the tax paid times the share of the gift that was appreciation. Because almost no one pays gift tax under the lifetime exemption, this is rare. Keep the Form 709 and payment records so the recipient can prove it later.

Gift Now or Later? Pros & Cons of Gifting Property During Your Lifetime

Deciding whether to gift property now or leave it as an inheritance means weighing estate tax savings against the recipient's future capital gains tax. Here is a side-by-side look:

Gifting now vs. waiting, under 2026 rules:

Pros of Gifting Property Now	Cons of Gifting Property Now
Reduce estate size: The property's value and all future growth leave your taxable estate, which can avoid estate tax near the exemption.	Lose step-up in basis: The recipient keeps your original cost basis, misses the step-up at death, and may owe large capital gains tax on sale.
Help family sooner: Your loved ones benefit now, whether a child lives in the house or collects the rent.	Paperwork and filing: A valuable property requires Form 709, uses part of your lifetime exemption, and brings appraisal and advisor fees.
Lock in value for tax purposes: A $500,000 house that doubles to $1,000,000 by your death keeps that $500,000 of growth out of your estate.	Loss of control: Once gifted, it is no longer yours. You lose rental income and use the property only with the new owner's permission.
Avoid probate: The property passes outside your will, skipping probate for that asset and speeding the transfer.	Other tax and benefit issues: Possible property tax reassessment (California, for example) and a Medicaid penalty if the gift falls inside the 60-month look-back.

If your estate is well under the taxable threshold, holding the property for the step-up usually wins. If you face federal or state estate tax, or you have non-tax reasons to transfer now, gifting can make sense despite the lost step-up.

This is not all-or-nothing. Some families place the property in an LLC or trust and gift units each year within the annual exclusion. That spreads the transfer over several years without ever filing Form 709. For anything beyond a simple deed, talk to an estate planning or tax professional.

Common Mistakes to Avoid When Gifting Real Estate

Skipping Form 709

Any real estate gift above the annual exclusion must be reported on Form 709, even when no tax is due. The county recorder does not tell the IRS when a deed changes, so the duty is yours. If you never file, there is no statute of limitations on the gift. Filing with adequate disclosure (Treas. Reg. §301.6501(c)-1(f)) starts a three-year clock, after which the IRS generally cannot revalue the gift.

Undervaluing the Property

Report the gift at fair market value, backed by a qualified appraisal near the gift date. Real estate is exactly the kind of hard-to-value gift the IRS looks at closely. A lowball value can bring back taxes, interest and penalties, and your exemption use is adjusted upward anyway.

Keeping Strings Attached

If you deed the house to your son but keep living there rent-free, IRC §2036 can pull the whole house back into your estate at death. Make a clean break, use a formal life estate deed, or pay fair market rent. After signing, do not borrow against the property or act like the owner.

Last-Minute Gifts

New York adds back taxable gifts made within three years of death. Federally, the one-year rule in IRC §1014(e) blocks quick gift-and-return basis games. Plan gifts as part of a long-term strategy, not an emergency move.

Ignoring Medicaid, the Mortgage and Family Risks

Most states use a 60-month look-back for Medicaid. A house gifted inside that window creates a penalty period, and the IRS annual exclusion does not make a gift safe for Medicaid. If there is any chance of needing long-term care, see an elder law attorney first.

Most mortgages have a due-on-sale clause. The Garn-St Germain Act (12 U.S.C. §1701j-3(d)) bars lenders from calling a loan on a home with fewer than five units when it goes to a spouse or child who moves in. It also covers a transfer into a revocable living trust where the borrower stays the beneficiary. Otherwise, get the lender's written consent or refinance.

A child who owns the house must insure it, owes the property tax, and could lose part of it in a divorce or lawsuit.

Overlooking State Taxes and Records

California may reassess property tax, and Florida charges doc stamps on a mortgage the recipient takes over. Give the recipient your purchase papers, improvement receipts, depreciation schedules and appraisal. Keep a copy of the filed Form 709 yourself.

How to Gift a Property Step by Step

Here is the usual order for a property gift:

1. Get a qualified appraisal dated as close to the gift as possible. It sets the value on Form 709.
2. Check the mortgage's due-on-sale clause. Get the lender's written consent if no Garn-St Germain exception applies.
3. Choose the deed. A quitclaim deed is simple but has no title warranty, and a warranty deed protects the recipient more. A life estate or Lady Bird deed (Florida, Texas) keeps the home yours for life.
4. Sign, notarize and record the deed with the county recorder or clerk.
5. File state change-of-ownership forms, such as California's Preliminary Change of Ownership Report and BOE-19-P.
6. Have the recipient apply right away for a homestead or homeowners' exemption.
7. File Form 709 by April 15 of the year after the gift (April 15, 2027 for a 2026 gift), with the appraisal attached.
8. Give the recipient your purchase papers, improvement receipts, depreciation schedules and a copy of Form 709.

Update the homeowners insurance and any leases at the same time.

Detailed Examples: How Gifting Property Works in Practice

The three examples below use 2026 figures.

Example 1: Gifting a House to a Child (Gift Tax and Basis Impact)

Maria wants to gift her primary home to her son Alex in 2026. She bought the California house 30 years ago for $80,000, and it is now worth $400,000. She has never used any of her lifetime exemption.

The 2026 annual exclusion of $19,000 covers part of the $400,000 gift, leaving a $381,000 taxable gift. Maria reports it on Form 709 by April 15, 2027. It comes off her $15,000,000 exemption, leaving $14,619,000, and no gift tax is owed.

Because Alex will live in the house, he files BOE-19-P for the Prop 19 parent-child exclusion. He also applies for the homeowners' exemption within one year. A $400,000 home is well inside the exclusion cap (see California below), so he keeps Maria's low assessed value. If he did not move in, the county would reassess the home at $400,000.

Alex's basis is $80,000. He lives there several years, then sells for $500,000, a $420,000 gain. As a single filer, he excludes $250,000 under §121, leaving $170,000 taxable. At the 2026 federal rate of 15%, that is about $25,500, plus California tax. Had Maria left him the house at death, his basis would have stepped up to about $400,000. The $100,000 gain would fit inside the exclusion, and his tax would be $0. Maria's estate was far below the exemption, so she gifted to see Alex enjoy the home and to skip probate, and accepted the tax cost.

Example 2: Gifting a Rental Property (and the Mortgage Twist)

David owns a rental duplex worth $300,000 with a $50,000 mortgage and an adjusted basis of $150,000. He gifts it to his daughter Eva in 2026, and she assumes the loan.

The debt Eva takes on counts as payment, so David's gift is the $250,000 of equity. After the 2026 annual exclusion of $19,000, $231,000 goes against his lifetime exemption on Form 709. No gift tax is due.

A mortgaged gift is part sale, part gift. Under Treas. Reg. §1.1001-1(e), David has a gain only if the debt relief exceeds his adjusted basis. His $50,000 loan is below his $150,000 basis, so he has no gain. With a $170,000 mortgage, he would have a $20,000 gain, and part of it could be taxed as unrecaptured §1250 gain. Run this math with a CPA before signing a deed.

Eva's basis is the greater of what she paid ($50,000 of debt) or David's $150,000 basis (Treas. Reg. §1.1015-4), so it is $150,000. She continues his depreciation schedule and takes on his §1250 exposure when she sells. Her state has no parent-child break for rentals, so the county may reassess at $300,000.

Because neither of them lives in the duplex, Garn-St Germain protection may not apply. David asked the lender first, and the bank let Eva assume the loan after checking her credit. The family also moved the insurance, leases and security deposits into her name.

Example 3: A Married Couple Gift-Splits a Vacation Home in 2026

Tom and Priya own a lake cabin worth $800,000 that they bought for $300,000. In 2026 they gift it to their daughter Nina. Neither spouse has used any lifetime exemption.

They elect gift splitting, so each spouse is treated as giving Nina $400,000. Each applies the 2026 annual exclusion of $19,000, leaving a $381,000 taxable gift apiece. Each files a separate Form 709 by April 15, 2027, with the other spouse's consent signed on the return.

Each spouse started with $15,000,000 of exemption and now has $14,619,000 left. No gift tax is due. Had they waited until 2027, the higher 2027 exclusion would have cut each taxable gift to $380,000.

Nina's basis is the couple's $300,000, not the $800,000 market value. If she sells for $850,000, her gain is $550,000. The cabin is not her main home, so no §121 exclusion applies unless she lives there two years first. Had she inherited it, her basis would have stepped up at the second parent's death.

Gift splitting doubles the annual exclusion, but it does not fix the carryover basis problem.

State-by-State Nuances: Gifting Property in CA, TX, NY, FL

Federal law governs gift tax and capital gains, but states layer on their own rules. Only one state, Connecticut, has a gift tax. For 2026, the Connecticut gift tax exemption equals the federal basic exclusion, the rate is a flat 12%, and combined Connecticut estate and gift tax is capped at $15 million. Every other state has no gift tax at all. Still, roughly a dozen states impose estate or inheritance taxes, and every state has its own property tax and deed transfer rules that a gift can trigger. Here is what to expect in four major states:

California: Property Tax Reassessment Traps

California has no gift or estate tax, so the issue is property tax. Under Prop 13, assessed value resets to market value only on a change in ownership, and a gift is a change in ownership.

Prop 19 limits the parent-child exclusion to a family home or family farm that was the parent's primary residence and becomes the child's primary residence. The child must claim the homeowners' (or disabled veterans') exemption within one year and file BOE-19-P with the county assessor. A Preliminary Change of Ownership Report goes in with the deed. Investment and vacation homes get no break.

The exclusion also has a value cap: the parent's factored base year value plus $1,044,586 for transfers from February 16, 2025 through February 15, 2027. The Board of Equalization adjusts that amount every two years. Example: the assessed value is $200,000 and the home is worth $1,500,000. The cap is $1,244,586, so the $255,414 above it is added, and the child's new assessed value is about $455,414. If the child does not move in, the home is reassessed at $1,500,000.

The swing can be large. A home assessed at $100,000 (about $1,200 a year in tax) and worth $1,500,000 could cost about $15,000 a year after reassessment. California also taxes capital gains as ordinary income at rates up to 13.3% for 2026, on top of federal tax. A grandparent-to-grandchild exclusion exists only if the grandchild's parents have died. Talk to a California property tax specialist before gifting a long-held home.

Texas: No Income Tax, No Estate Tax – Smooth Sailing

Texas has no gift tax, no income tax and no estate or inheritance tax. Federal rules are the only tax rules for the gift, and only federal capital gains tax applies to a later sale. Texas also has no deed transfer tax. You pay only a county recording fee.

Property tax is where a gift matters. Appraisal districts value homes at market value, so there is no low base that suddenly resets. But the homestead exemption and the 10% yearly cap on appraisal increases belong to the owner who lives there. For 2026, the school-district homestead exemption is $140,000, with an extra $60,000 for owners 65 or older or disabled. The recipient gets these only by living in the home and filing Form 50-114 with the appraisal district. If the house becomes a rental, the exemption and cap end, and the bill rises once to full appraised value.

New York: No Gift Tax, But Watch the Estate "Clawback"

New York has no gift tax and no state gift return. It does have an estate tax. The New York basic exclusion amount is $7,350,000 for deaths in 2026. The Department of Taxation and Finance will announce the 2027 amount.

The catch is the three-year addback. Under Tax Law §954(a)(3), taxable gifts a New York resident makes within three years of death are added back to the New York estate. The rule applies to deaths before January 1, 2032. Gifts made while not a New York resident, and gifts of real property outside New York, are not added back.

The addback matters because of New York's estate tax cliff. If the taxable estate exceeds 105% of the exclusion ($7,717,500 for 2026 deaths), the exclusion disappears and the whole estate is taxed at rates up to 16%. Someone with an $8,000,000 estate who gifts $1,000,000 and lives three more years drops to $7,000,000, under the exclusion. Die sooner and the full $8,000,000 is taxed.

New York localities generally may not reassess a property just because it changed hands. Owner-specific breaks like STAR do not transfer, so the new owner must apply.

Transfer taxes apply only to consideration. New York City's real property transfer tax does not apply to a pure gift with no money and no mortgage. If the recipient takes over a mortgage, the city taxes the debt at about 1% to 1.425% for residential property, and the state adds $2 per $500. Pay off the mortgage first for a tax-free transfer. New York also taxes capital gains as ordinary income at rates up to 10.9% for 2026.

Florida: No Taxes on Gifts, but Mind the Homestead

Florida has no income, estate or gift tax. The issues are homestead status and doc stamps.

For 2026, Florida's homestead exemption is up to $50,000 on a primary residence. The Save Our Homes cap limits yearly assessment increases to 3% or the CPI change, whichever is lower. A gift ends your homestead unless you keep a life estate and stay in the house. The assessment resets to market value on the January 1 after the transfer, so a long-held home can see a big jump. The recipient can file a new homestead application if they live there, but the cap restarts from the new value.

A quitclaim or warranty deed makes an outright gift. A Lady Bird (enhanced life estate) deed lets you keep control for life and pass the home at death outside probate. Because it is not a completed gift until death, it keeps the step-up in basis and avoids the Medicaid look-back. Once the home is no longer your homestead, you also lose its creditor protection.

For 2026, doc stamp tax on deeds is $0.70 per $100 of consideration. Miami-Dade charges $0.60 per $100 on single-family homes and adds a $0.45 surtax on other property. A gift with no mortgage owes only a minimal stamp. A mortgage the recipient takes over counts as consideration, so a $120,000 loan means $840 in doc stamps. Florida has no inheritance tax and does not add gifts back to an estate.

Pennsylvania has no gift tax, but transfers made within one year of death that exceed $3,000 per recipient are added back for Pennsylvania inheritance tax.

What Tax Court Cases Teach About Gifting Property

An Unfiled Gift Return Never Expires

In Redstone v. Commissioner, T.C. Memo. 2015-237, a taxpayer transferred family-business stock to his children in 1972 and never filed a gift tax return. More than 40 years later, the Tax Court agreed it was a gift. He owed about $737,625 in gift tax plus interest running from 1972. Penalties were waived because he relied on professional advice.

Lesson: file Form 709 with adequate disclosure so the three-year clock starts.

A $1 Sale Is Still a Gift

Treas. Reg. §25.2512-8 treats a transfer for less than full value as a gift of the difference. Sell a $350,000 house to your child for $1 and you have made a $349,999 gift that belongs on Form 709. Adding a child to the deed as a joint tenant for nothing gifts roughly half the home's value.

Valuation Discounts Draw Scrutiny

Owners who gift fractional interests, or units in a family LLC that holds real estate, often claim a discount because a partial share is hard to sell. The IRS regularly challenges aggressive discounts, and the Tax Court has often raised the gift value. Support any discount with a professional appraisal and stay conservative.

Follow the Formalities

In Smaldino v. Commissioner, T.C. Memo. 2021-127, a husband gave LLC interests in rental property to his wife, who passed them to a family trust the next day so both spouses' exemptions would apply. The wife was never treated as a member, and the papers were inconsistent. The Tax Court treated the gift as coming straight from the husband, roughly doubling his taxable gift.

Lesson: if you route a gift through another person, give that person real ownership, real time and consistent documents. Willfully hiding gifts or filing a false Form 709 can become fraud. The system already favors honest filers, so there is no reason to cheat.

What to Do Next

1. Find your original purchase price and improvement receipts so you know the basis the recipient would take over.
2. Compare the capital gains tax on a future sale with carryover basis against the tax with a step-up at death.
3. If you might need long-term care in the next five years, see an elder law attorney before signing any deed.
4. Ask your county assessor whether the gift will trigger a property tax reassessment.
5. Meet with a CPA or estate attorney to choose between an outright gift, a life estate deed or keeping the property.

Answers to Common Gifting Questions

Here are quick answers to the questions people ask most about gifting property.

Can I gift my house to my child without paying any taxes?

Yes, in most cases. The annual exclusion covers small gifts, and the lifetime exemption absorbs the rest of a house's value with no tax due. You must still file Form 709 if the value exceeds the annual exclusion.

Do I need to file a tax return when gifting property?

Yes, if the gift's value exceeds the annual exclusion. File IRS Form 709 by April 15 of the year after the gift (a 2026 gift is due April 15, 2027). Usually no tax is owed; the form records how much lifetime exemption you used.

Is it better to gift real estate or leave it in my will for my heirs?

Often, leaving it is more tax-efficient. Inherited property gets a stepped-up basis at death, which can erase decades of capital gains. Gifting makes sense when estate tax is a real concern, or when you have non-tax reasons to transfer now, such as helping a child or avoiding probate.

Can I sell my house to my child for $1 to avoid the gift tax?

No. The IRS treats the difference between fair market value and $1 as a gift. A token price does not avoid gift tax rules or the Form 709 filing requirement.

If I add my son or daughter to the deed, is that a taxable gift?

Yes. Adding a co-owner who pays nothing is a gift of that share of the property's value. Making your child a 50% joint tenant is a gift of half the home's market value on the date you sign the deed.

Will property taxes go up if I gift my house to a family member?

Often, yes. California reassesses unless the Prop 19 parent-child exclusion applies and the child moves in. Florida resets the assessment to market value on the January 1 after the transfer. New York usually does not reassess, but breaks like STAR do not transfer. Expect a higher bill unless the new owner qualifies for an exemption and applies.

Can gifting a house affect Medicaid or nursing home eligibility?

Yes. Most states apply a 60-month (5-year) look-back. A house gifted inside that window creates a penalty period of Medicaid ineligibility. The IRS annual exclusion and lifetime exemption have no effect on Medicaid rules.