Kiddie Tax 2026: Form 8615, $2,700 and Gifted REIT Income

The 2026 numbers on one screen

Section 1(g) taxes a child at the greater of two things: the ordinary tax, or the tax on the child’s income after removing net unearned income plus the child’s share of the “allocable parental tax” (26 U.S.C. 1(g)(1)). Net unearned income is unearned adjusted gross income minus two things: the 63(c)(5)(A) amount, and the larger of that amount or itemized deductions directly connected with the income (1(g)(4)(A)). For 2026 the amount is $1,350 (Rev. Proc. 2025-32, section 4.02), the same floor as the dependent standard deduction (section 4.14(2): the greater of $1,350 or $450 plus earned income).

Two corrections to what circulates. The amount did not change from 2025 to 2026: the 2025 Form 8615 line 2 is also $2,700, and the Rev. Proc. says the 2026 figure is $1,350. And the 2026 Form 8615 does not exist yet. The Instructions for Form 8615 that the IRS publishes today are the 2025 revision, for returns filed in 2026; the 2026 numbers on this page come from Rev. Proc. 2025-32, which is the source for the instructions to come.

Who is a “child” for this rule: age 24 is the exit

The statute starts with a child who “has not attained age 18 before the close of the taxable year” (1(g)(2)(A)(i)), or who has turned 18 and meets the support test. The IRS instructions state the three age paths and the January 1 birthday rule.

Practical reading (our reading): the 0% long-term gain bracket for a single filer runs to $49,450 of taxable income in 2026 (Rev. Proc. 2025-32, section 4.03, all other individuals). Giving appreciated shares to an adult grandchild who is over the age test, or a 19-to-23-year-old who is not a student, uses it. Giving the same shares to a minor does not, once the income passes $2,700.

A $35,000 case: REIT dividends and a gain in a child’s name

The assumptions are ours. A child under 18 owns shares given by a grandparent. For 2026 the child receives $20,000 of non-qualified REIT dividends (no section 199A deduction assumed) and sells shares for a $15,000 long-term gain. No earned income, no itemized deductions. The parents file jointly with the taxable income shown and have no capital gains or other children’s income. The method follows Form 8615 (lines 1 to 18) and the 2025 Line 5 Worksheet #1, which splits the $2,700 pro rata between dividends and gain.

• Unearned income $35,000 minus $2,700 gives net unearned income of $32,300. Taxable income is $35,000 minus the $1,350 standard deduction, $33,650. The child keeps $1,350 of taxable income at the child’s rates.
• Of the $32,300, $13,842 is long-term gain (15,000 less 2,700 times 0.429) and $18,458 is ordinary.
• The tax on that layer is the parents’ tax on their taxable income plus $32,300, minus their tax without it (Form 8615 lines 5 to 11). The child’s own $1,350 layer costs $19.

All figures in the table are our arithmetic from the 2026 brackets in Rev. Proc. 2025-32 (section 4.01, Tables 1 and 3) and the capital gain ceilings in section 4.03. Three readings:

1. The cost is mostly the gain. The gain portion is taxed at 15% in the first two rows and at 20% in the last two, because at $600,000 plus the layer the parents’ income passes the $613,700 ceiling for joint filers. The same $35,000 for the adult costs $1,990: $1,240 plus 12% on the ordinary income above $12,400, with the whole $15,000 gain at 0%.
2. Above $2,700, moving the income to a minor saves nothing at these brackets. The layer is taxed at the parents’ rates, as if it sat on their own return (our reading of 26 U.S.C. 1(g)(1)).
3. The net investment income tax is separate. The Form 8615 instructions send the child to Form 8960. The child’s own threshold is $200,000 (26 U.S.C. 1411(b)(3)), so this child owes none. The parents’ threshold is $250,000 on a joint return (1411(b)(1)).

Form 8615 or Form 8814: who reports the child’s income

Parents may elect to put a child’s income on their own return if the child meets seven tests (Instructions for Form 8814). The ones that matter for investment gifts:

• Gross income more than $1,350 and less than $13,500 for 2026 (Rev. Proc. 2025-32, section 4.02).
• Only interest and dividends, “including capital gain distributions”. The statute says the same: gross income “only from interest and dividends” (1(g)(7)(A)(i)). Ordinary dividends “received through a partnership, an S corporation, or an estate or trust” are included (Form 8814, line 2a), but rent, business income and a gain from selling shares are not.
• No estimated tax in the child’s name and no withholding.

What the election does: amounts up to $1,350 are not taxed; the next $1,350 is taxed at 10%, which can cost up to $135 more than a separate return if the income is qualified dividends or capital gain distributions that could have been at 0% (Form 8814, Rate may be higher); the rest is added to the parents’ income. The cost the instructions list is real for a wealthy household: the higher adjusted gross income “may reduce certain deductions or credits” (traditional IRA deduction, student loan interest, medical and state and local tax itemized deductions, the child tax credit, education credits), and “All net investment income” on the form goes into the parents’ net investment income for the 3.8% tax.

For a household that already pays NIIT, the election moves the child’s investment income into the parents’ NIIT base. A separate Form 8615 return keeps it out (our reading of the two sets of instructions).

Gifting REIT, BDC and K-1 interests: what actually follows the child

The Form 8615 instructions leave no room: “Your child’s unearned income includes all income produced by property belonging to your child. This is true even if the property was transferred to your child.” Distributions of interest, dividends and capital gains from a trust the child benefits from are unearned too. Applied to the vehicles this site covers:

A gifted K-1 does not, in our reading, create unrelated business taxable income for a child’s taxable account; that issue arises in IRAs and charities (see our Form 990-T and UBTI guide). What a K-1 gift does create for a minor is taxable income without cash and a tax return filing duty that the child cannot file alone.

Section 704(e)(1) also limits the transfer: the donee’s share is taxed to the donee “except to the extent that” it is determined without reasonable compensation for the donor’s services or the donated capital share is proportionately larger than the donor’s. For a passive fund interest the practical issue is whether the sponsor lets a minor or a custodian hold the interest at all; that is a document question, not a tax one.

Trust, 529 or the child’s own name

Choosing the container changes who pays the tax:

• Child’s name (custodial account): net unearned income above $2,700 at the parents’ rates, shown above. The first $2,700 is cheap: with only ordinary income the child’s tax on the $1,350 band is $135 (our arithmetic, 10% of $1,350).
• Accumulating trust: the trust pays the tax. Rates are 10% to $3,300, 24% to $11,700, 35% to $16,000 and 37% above (Rev. Proc. 2025-32, Table 5). Our trust brackets guide has the full table, the 65-day election and a worked estate. Where the trust distributes, the beneficiary-child reports it and the kiddie rule applies to the child.
• A 529 plan: outside the Form 8615 and Form 8814 sources used here. Contributions are gifts under the $19,000 annual exclusion, with the five-year election covered in our 529 superfunding guide.
• A trust with withdrawal rights: see our Crummey trust guide for the illiquid-asset problem.

What a reader can do with this

• Count the ages on December 31, 2026. The test is the age at the end of the tax year; a January 1 birthday counts as the prior year (Form 8615 instructions). For a grandchild near 18 or 24, a gift in December can change which side of the rule the income falls on in 2027.
• Estimate the child’s unearned income before the gift. Dividends at the current yield, plus any planned sale. Under $2,700 the rule costs almost nothing; above it, use the table above.
• Decide the gain separately from the dividends. A sale by a minor above the line is taxed at the parents’ gain rate. A gift to an adult grandchild over the age test can use the 0% bracket up to $49,450 of taxable income (our reading of section 4.03).
• Ask the fund two things before gifting: whether it will register a minor or a custodian, and whether it issues a 1099-DIV or a K-1.
• Mark the parents’ return information. Form 8615 uses the parents’ taxable income. If it is not known by the due date, the instructions tell the child to file Form 4868 (an extension to file, not to pay).
• Watch for the 2027 amounts. The 2027 inflation adjustments had not been published as of October 22, 2026; they may move the $1,350 figure.

Gifts of appreciated investments to children combine four rules (gift tax, basis, the child’s return and the parents’ return), and the right split between a gift to a child, a trust and an adult relative depends on the family’s tax picture, which is what a CPA and an estate attorney can look at.

FAQ

Sources, read and saved on October 22, 2026: Rev. Proc. 2025-32 (sections 4.01 Tables 1, 3 and 5, 4.02, 4.03, 4.05, 4.11, 4.14 and 4.42), irs.gov; Instructions for Form 8615 (2025) and Instructions for Form 8814 (2025), irs.gov; 26 U.S.C. 1, 704, 1015 and 1411 (Legal Information Institute). The worked case, tax differences and readings are our arithmetic with the assumptions stated. See also our guides to tax brackets for married couples filing jointly and capital gains tax on real estate. This is analysis of public documents, not investment, legal or tax advice.