IRS Form 709 Definition and Description
Reporting Taxable Gifts
IRS Form 709 is used to report taxable gifts, and it also allocates the lifetime use of a taxpayer's generation-skipping transfer tax exemption. The official name of Form 709 is United States Gift (and Generation-Skipping Transfer) Tax Return.
Who Must File Form 709?
Taxpayers are required to file Form 709 if they give gifts in excess of the tax year's annual gift tax exclusion. This exclusion was $15,000 per person per year as of 2018, and it's indexed for inflation—you can expect it to increase periodically in $1,000 increments.
Gifts made to spouses who are U.S. citizens, to educational institutions toward a student's expenses, medical bills paid directly to a care provider, and gifts made to charitable or political organizations are exempt. You don't have to report these to the Internal Revenue Service.
What Counts as a Gift?
The IRS definition of a gift covers several circumstances that many taxpayers may not be aware of. If you forgive a debt that's owed to you, this may be a gift that requires filing Form 709. Extending someone a loan at zero interest or below the current market interest rate is also considered a gift, as is selling property if you do so for a price below fair market value. Speak with a tax professional if you've done any of these things because the tax calculation based on the value of the transaction can be complicated.
Future interest gifts are not covered by the $15,000 annual exclusion. These include gifts placed in trust for future generations, which are subject to the generation-skipping transfer tax and must also be reported on IRS Form 709.
Using the Unified Tax Credit
You have the option of applying the lifetime gift exemption rather than paying the gift tax if your gift-giving exceeds the year's annual exclusion. The lifetime exemption is $5.6 million as of 2018, which covers a lot of gifts. But there's a catch.
The gift tax, generation-skipping transfer tax, and the federal estate tax all share this lifetime exemption under the terms of what's called the Unified Tax Credit. Each time you apply the lifetime exemption to gift or GST taxes, the amount is deducted from what's available to shelter your estate from estate taxes when you die.
For example, if you make a $1 million transfer into a trust for benefit of your grandchild, you have exceeded the annual exclusion by $985,000. If you decide you do not want to pay the generation-skipping transfer tax on this amount—or a gift tax on any comparably-valued outright gift—and if you apply the Unified Tax Credit, that's $985,000 less that's available to shelter your eventual estate from estate taxes. Your Unified Tax Credit drops to $4,615,000.
You must still file Form 709 to let the IRS know that you want to use the lifetime exemption.
Form 709 Filing Requirements
Form 709 must be filed on or before April 15 following the year in which a taxable gift or a generation-skipping transfer is made.
Although spouses can combine their annual exclusions to give away a total of $30,000 per person per year as of 2018, they must file their own separate Forms 709 if they go over this amount. There's no such thing as a "joint" gift tax return.