There is no Vermont gift tax. The state repealed its gift tax statutes in 1979, so giving cash, real estate, or investments to someone during your lifetime does not create a Vermont tax bill at the time of the transfer.1Vermont General Assembly. Vermont Code 32 – Estate and Gift Taxes Two other rules still reach your gifts, though. Vermont’s estate tax pulls certain gifts made within two years of death back into the taxable estate, and the federal gift tax framework applies to Vermont residents like everyone else. The interaction between those two systems is where people get caught.
No Standalone Gift Tax in Vermont
The gift tax provisions formerly found at 32 V.S.A. §§ 7411–7418 were repealed in 1979, and Vermont never replaced them. You can transfer assets to family, friends, or anyone else without owing the state anything at the time of the gift. No Vermont gift tax return exists to file.
The state’s interest in your generosity surfaces later, at death, through the estate tax. That design lets Vermont capture large wealth transfers without running a separate gift tax system alongside it.
The Two-Year Lookback Into Vermont’s Estate Tax
Vermont’s definition of the “Vermont taxable estate” at 32 V.S.A. § 7402(14)(C) includes the total value of taxable gifts the deceased made within two years before dying.2Vermont General Assembly. Vermont Code 32 VSA 7402 – Definitions The gift’s value at the time it was made is added to the taxable estate, with one exception: if the gift was already counted in the federal gross estate, it is not counted twice.
The lookback applies to taxable gifts as defined under federal law (26 U.S.C. § 2503), meaning gifts that exceeded the annual exclusion. A modest birthday check under the annual exclusion would not be pulled back. A $500,000 transfer of a vacation property six months before death would.
Once a gift is added back, Vermont taxes the combined estate at a flat 16% on everything above $5 million.3Vermont General Assembly. Vermont Code 32 VSA 7442a – Imposition of a Vermont Estate Tax and Rate of Tax An estate worth $4.8 million that included a $400,000 gift made 18 months earlier reaches a combined $5.2 million, putting $200,000 in the taxable range and generating a $32,000 Vermont estate tax bill.
If you are giving during a period when serious health concerns could shorten the two-year window, keep good records of dates, amounts, and recipients. Your executor will need them.
The Federal Annual Exclusion
Federal gift tax rules still apply to every gift you make. For 2026, you can give up to $19,000 per recipient without any reporting requirement.4Internal Revenue Service. Frequently Asked Questions on Gift Taxes There is no cap on the number of people you can give to. A couple with four grandchildren could each give $19,000 to all four, moving $152,000 out of their combined estates in a single year without filing a form.
Gifts above $19,000 to any one person in a year require IRS Form 709, due by April 15 of the following year.5Internal Revenue Service. Instructions for Form 709 Filing the form does not necessarily mean you owe tax. The excess simply reduces your lifetime exemption.
The Federal Lifetime Exemption
The federal lifetime gift and estate tax exemption for 2026 is $15 million per person.6Internal Revenue Service. What’s New — Estate and Gift Tax That amount was set by the One, Big, Beautiful Bill Act, which amended 26 U.S.C. § 2010(c)(3) and was signed into law on July 4, 2025.7Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax Unlike the earlier increase under the 2017 Tax Cuts and Jobs Act, this exemption has no sunset date.
Every dollar you give above the annual exclusion chips away at the $15 million lifetime cushion. You will not owe federal gift tax until you exhaust it. For most Vermonters, the federal ceiling is the smaller worry. Vermont’s estate tax starts at $5 million, so a $6 million estate is nowhere near the federal threshold but is already $1 million into Vermont’s 16% bracket.
Gift Splitting for Married Couples
Married couples can effectively double the annual exclusion through gift splitting. Under 26 U.S.C. § 2513, if one spouse makes a gift, both spouses can agree to treat it as if each gave half.8Office of the Law Revision Counsel. 26 USC 2513 – Gift by Husband or Wife to Third Party A couple can give $38,000 to a single recipient in 2026 without exceeding the annual exclusion, even if only one spouse wrote the check.
Both spouses must consent to gift splitting on Form 709, and the consent applies to all gifts made by either spouse during that year. Both spouses become jointly liable for any gift tax owed. If you split gifts, both spouses need to file Form 709, even when neither individually gave more than $19,000 to any one person.
Gifts That Don’t Count Toward Any Limit
Some transfers are excluded from the federal gift tax system entirely and do not reduce your annual or lifetime exemption. These matter because they let you move real money to family without any tax consequence, and because the amounts are unlimited they can be useful for shrinking a Vermont estate below the $5 million line.
- Tuition paid directly to a school or university on someone’s behalf. The payment must go straight to the institution; reimbursing a student for tuition already paid does not qualify, and the exclusion does not cover room and board, books, or other education expenses.9Office of the Law Revision Counsel. 26 USC 2503 – Taxable Gifts
- Medical expenses paid directly to a hospital, doctor, or insurance company for someone’s care. Again, the payment must go to the provider, not the patient.
- Transfers to a spouse who is a U.S. citizen, which are generally unlimited.
- Gifts to qualified charities, which are deductible rather than taxable.
These exclusions sit on top of the $19,000 annual exclusion. You could pay $80,000 in tuition for a grandchild directly to the school, give that grandchild $19,000 in cash, and owe nothing on any of it.
The Hidden Cost: Carryover Basis
Giving an appreciated asset during your lifetime carries a tax cost that shows up later. When you give someone stock or real estate, the recipient inherits your original cost basis.10Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust If you bought shares for $20,000 and they are worth $200,000 when you give them away, the recipient’s basis is still $20,000. When they sell, they owe capital gains tax on the $180,000 difference.
The same asset passing through your estate at death receives a stepped-up basis equal to its fair market value on the date of death. Shares worth $200,000 at death carry a $200,000 basis, and the heir could sell immediately with no capital gains tax.
That creates a real tradeoff for Vermonters with estates near the $5 million line. Gifting appreciated assets during life may drop the estate below the Vermont threshold, saving 16% on the amount removed. But if those assets carry large unrealized gains, the recipient may face a capital gains bill that partly or fully offsets the estate tax savings. Running the numbers on both sides before making large gifts of appreciated property is where professional advice tends to pay for itself.
Filing Federal Form 709
Federal gift tax reporting runs on its own timeline. Form 709 is due by April 15 of the year after the gift was made.5Internal Revenue Service. Instructions for Form 709 A $50,000 gift made in June 2026 puts Form 709 on the calendar for April 15, 2027. An automatic six-month extension is available through Form 8892, and the deadline also extends automatically if you have extended your income tax return.
You do not need to file Form 709 for gifts within the annual exclusion, gifts to a citizen spouse, gifts to charities, or direct payments of tuition or medical expenses to the provider. If you split gifts with your spouse, however, both of you must file even when neither individual gift exceeded $19,000.
Keep copies of every Form 709 you ever file. Your executor will need a complete lifetime gift record to calculate both federal and Vermont estate tax accurately, and gaps in that record create real problems when the estate is finally settled.