When Is a Gift Tax Return Required to Be Filed?

How to Determine If You Must File a Gift Tax Return - IRS Form 709

Man presenting gift to woman
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The federal gift tax is one of the most misunderstood taxes by far. It applies to transfers of property from one person to another where the recipient does not pay fair market value for the property. In the case of gifts of cash, it applies when the recipient does not give anything of value in return for the cash.

If you make one or more of these types of transfers during the course of a given year, you may be required to file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return under the following circumstances.

Gifts Exceeding the Annual Exclusion 

Gifts that do not exceed $14,000 per year as of 2016 qualify for an annual exclusion. But if you give your son $10,000 to buy a car and another $5,000 to pay off his credit card debt, you've made a taxable gift to him of $1,000. As the gift giver, you are required to file IRS Form 709. Your son will not incur any income tax or gift tax consequences. This annual exclusion is indexed for inflation so it will go up periodically.

You and Your Spouse Agree to "Split" Gifts

Gift that do not exceed $14,000 per year to the same person qualify for the annual exclusion, but if your spouse gives your son $10,000 to buy a car and another $5,000 to pay off his credit card debt, and if the entire $15,000 came from an account in her sole name, your spouse has two options: 

  • She can file Form 709 and report $1,000 in taxable gifts to your son.  
  • She can file Form 709 and report that you have elected to divide the gifts between the two of you. Each of you is considered to have made a $7,500 gift. 

    Gift-splitting is referred to as a "legal fiction" -- although your spouse is the one who actually made the gifts, the Internal Revenue Code allows you and your spouse to say that the gifts really came from both of you. In the end and given the annual exclusion, no taxable gifts were made. While gift-splitting is a total figment of the Internal Revenue Code, it is still a perfectly legal and legitimate gift tax position.

    Your Spouse Is Not a U.S. Citizen

    The total value of gifts made from a spouse who is a U.S. citizen to a spouse who is not a U.S. citizen is also subject to exclusions. In contrast to the $14,000 annual exclusion limit for gifts that applies to a non-spouse, an unlimited marital deduction covers gifts made to a spouse who is a U.S. citizen -- you can give her as much as you like without ever incurring a tax. 

    Gifts made to a spouse who is not a U.S. citizen are a different matter. They're limited to a specific dollar amount which is also indexed for inflation. As of 2016, this exclusion is $148,000. If you give her more than this, you must pay the gift tax on the balance. 

    Future Interest Gifts 

    A gift of a future interest is one that the recipient will not be allowed to use or enjoy for a number of years, such as cash or property placed in an irrevocable trust. One or more beneficiaries do not have an immediate right to withdraw and use the gift. This can bring gift taxes due, but there are ways to construct trusts to avoid this. Consult with an estate attorney if you're considering giving a gift in this manner. 

    When Is IRS Form 709 Due?

    IRS Form 709 is due on or before April 15 of the year following the year in which you made taxable gifts.

    Consult with your estate planning attorney or accountant well before April 15 to be sure it's required if you're not certain whether gifts you made during the year should be reported to the Internal Revenue Service.  

    NOTE: State and federal laws change periodically. The above information -- and particularly exemption amounts -- may not reflect the most recent changes. Please consult with an attorney or tax professional for the most up-to-date advice. The information contained in this article is not intended as legal or tax advice and it is not a substitute for legal or tax advice.