Maryland does not have a gift tax. You can give cash, property, or investments to anyone during your lifetime without owing any state tax on the transfer. Federal gift tax rules still apply, though, and Maryland’s inheritance tax can reach back and treat certain gifts made within two years of your death as part of your taxable estate.
No State Tax on Lifetime Gifts
Maryland residents can give away money or property while alive without triggering a state tax bill. The Comptroller of Maryland administers an inheritance tax and a separate estate tax, but neither applies to gifts made during a healthy donor’s lifetime.1Comptroller of Maryland. Estate and Inheritance Tax Information The identity of the recipient doesn’t change that answer. A child, a friend, a neighbor, a charity — none of them owe Maryland tax on a gift you make while you’re alive.
What you do have to watch is the federal side, and one Maryland rule that can retroactively reclassify a gift as an inheritance if you die soon after making it.
Gifts Within Two Years of Death
Under Maryland Tax-General § 7-201, a gift made within two years of the donor’s death can be pulled into the taxable estate and taxed at the state’s 10% inheritance tax rate.2Maryland General Assembly. Maryland Tax-General Code 7-201 – Definitions The statute presumes such transfers were made in contemplation of death, and the burden falls on the recipient to prove otherwise.
Three details shape how this works:
- The rule targets transfers of a material part of the donor’s property that look like a final distribution of wealth. Small or routine gifts are unlikely to trigger it.
- Legitimate sales for full value in money are excluded, even inside the two-year window.
- When the rule does apply, the recipient — not the estate — is generally responsible for the 10% tax.3The Office of the Register of Wills. Inheritance Tax
Who the Inheritance Tax Doesn’t Touch
Maryland exempts close family members from the inheritance tax entirely. When the recipient is exempt, the two-year lookback has no practical bite. For deaths on or after July 1, 2000, the following recipients owe no inheritance tax:4Maryland General Assembly. Maryland Tax-General Code 7-203 – Exemptions
- Spouse
- Children, grandchildren, and other lineal descendants
- Parents and grandparents
- Siblings
- Stepchildren
- A spouse of a child or lineal descendant, including a surviving spouse of a deceased child
- Registered domestic partners, for deaths on or after October 1, 20233The Office of the Register of Wills. Inheritance Tax
The 10% inheritance tax applies to everyone else: nieces, nephews, aunts, uncles, cousins, friends, and unrelated individuals.3The Office of the Register of Wills. Inheritance Tax Qualifying charitable organizations incorporated in Maryland or conducting substantial activity in the state are also exempt.4Maryland General Assembly. Maryland Tax-General Code 7-203 – Exemptions
Why Lifetime Gifts Still Matter in Maryland
Maryland separately imposes an estate tax on the overall value of a deceased person’s estate, with an exemption frozen at $5 million — well below the federal threshold. The tax rate can reach up to 16% of the amount by which the taxable estate exceeds that $5 million.1Comptroller of Maryland. Estate and Inheritance Tax Information
This is where the absence of a gift tax becomes a planning tool. Because Maryland doesn’t tax lifetime transfers, assets you give away now reduce the size of your taxable estate later. Someone with a $7 million estate who gives away $2 million over several years could bring the estate below the $5 million exemption and potentially eliminate the Maryland estate tax. If those gifts go to exempt relatives, the two-year contemplation-of-death rule doesn’t create a problem either. For estates hovering near or above $5 million, the math is worth running with an estate planning attorney.
Federal Annual Exclusion
The federal annual gift tax exclusion for 2026 is $19,000 per recipient.5Internal Revenue Service. Frequently Asked Questions on Gift Taxes You can give that amount to as many different people as you want without filing anything with the IRS. A parent with three adult children could move $57,000 out of their estate in a single year — $19,000 to each child — with no paperwork.
Married couples can double the exclusion through gift splitting. If one spouse writes a $38,000 check to a relative, both spouses can elect to treat the gift as if each gave $19,000. Both spouses generally have to file Form 709 to consent to splitting, even though neither exceeded the exclusion on their half.6Internal Revenue Service. Instructions for Form 709 There is a narrow exception: the consenting spouse can skip their own Form 709 if they made no other gifts that year and every split gift to each recipient stayed within twice the annual exclusion.
Federal Lifetime Exemption
Gifts above the $19,000 annual exclusion aren’t immediately taxed. They count against a much larger lifetime exemption, which for 2026 is $15 million per individual under the One, Big, Beautiful Bill (Public Law 119-21) signed into law on August 4, 2025.7Internal Revenue Service. What’s New – Estate and Gift Tax
The federal government doesn’t collect actual gift tax until you’ve given away more than $15 million over your lifetime, on top of your annual exclusions. Most Maryland residents will never owe a dollar of federal gift tax. The exemption is shared between lifetime gifts and your estate at death, so every dollar used during life reduces what’s sheltered at death. Give away $2 million above the annual exclusion, and your remaining exemption at death drops to $13 million.
Unlimited Tuition and Medical Payments
Two kinds of gifts fall outside the federal gift tax system entirely and don’t count against either the annual or lifetime exemption. You can pay someone’s tuition or medical bills without any gift tax consequences, as long as you pay the provider directly.8Office of the Law Revision Counsel. 26 U.S. Code 2503 – Taxable Gifts
The tuition exclusion covers only tuition. Room, board, books, and supplies don’t qualify. The check must go to the school, not the student. Paying your grandchild’s semester bill directly to the university qualifies; handing your grandchild the money to pay it does not.
The medical exclusion covers diagnosis, treatment, medical insurance premiums, and long-term care. Cosmetic surgery doesn’t qualify unless it corrects a congenital condition or injury-related disfigurement. Payment must go directly to the hospital, clinic, or insurer. If insurance later reimburses the expense, the donor’s payment loses its exclusion unless the recipient repays the donor.
For Maryland residents with large estates, these exclusions are powerful. Paying a grandchild’s college tuition or a parent’s nursing home bills directly moves money out of your estate without touching any exemption amount.
The Basis Trade-Off
One cost of giving property away during your lifetime often gets overlooked: what happens to the tax basis when the recipient later sells the asset.
When you give someone an asset while you’re alive, they take your original cost basis. Buy stock for $10,000, watch it grow to $100,000, give it to your daughter — her basis is $10,000, and she’ll owe capital gains tax on the $90,000 difference when she sells.9Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
When the same asset passes at death, the basis resets to fair market value on the date of death. The $100,000 stock gets a $100,000 basis, and the heir can sell immediately with zero capital gains.10Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
That’s a real tension. Lifetime gifting reduces Maryland estate tax exposure but sticks the recipient with a potentially large capital gains bill. For highly appreciated assets like real estate or long-held stock, letting the property pass at death may save more in total taxes. The right answer depends on how much the asset has appreciated, how far the estate sits above the $5 million Maryland threshold, and whether the recipient plans to hold or sell.
When You Have to File Form 709
Any gift above the $19,000 annual exclusion triggers a Form 709 filing requirement, even when no tax is owed. Married couples electing gift splitting generally have to file as well. The form tracks how much of your $15 million lifetime exemption you’ve already used.
Form 709 is due April 15 of the year following the gift. An automatic six-month extension on your federal income tax return automatically extends Form 709.11eCFR. 26 CFR 25.6081-1 – Automatic Extension of Time for Filing Gift Tax Returns You can also request a standalone six-month Form 709 extension if you don’t need an income tax extension.
The completed return goes to the Internal Revenue Service Center, Kansas City, MO 64999.12Internal Revenue Service. Where to File – Forms Beginning With the Number 7 Send it certified so you have proof of timely filing. You’ll need the names, addresses, and Social Security numbers of the donor and each recipient, along with a description and fair market value of each gift. For real estate or other hard-to-value property, a professional appraisal is the safest way to establish value.
Penalties for Late Filing or Undervaluing Gifts
Late filing and late payment penalties apply under Section 6651 and can be waived only for reasonable cause.6Internal Revenue Service. Instructions for Form 709
The bigger exposure is valuation. Report a gift at 65% or less of its actual value and the IRS treats it as a substantial understatement, adding a penalty of 20% of the resulting tax underpayment. Report at 40% or less, and the penalty doubles to 40%.13Internal Revenue Service. Return Related Penalties These penalties only apply when the underpayment tied to the valuation error exceeds $5,000, so small discrepancies on modest gifts won’t trigger them. For real estate, business interests, or artwork, where value is inherently subjective, a qualified appraisal is cheap insurance.