Form 709 is the United States Gift and Generation-Skipping Transfer Tax Return, which is required by the IRS to report taxable gifts you might make during your lifetime.
This form should be filed for any year in which you make a taxable gift, although the Internal Revenue Code is set up with numerous exclusions and options, so you might not actually owe the tax.
Large estates are taxed on their value when someone dies and leaves their property to beneficiaries. A clever benefactor could dodge the estate tax by giving their largess away tax-free during their lifetime—if not for the federal gift tax.
Reporting gifts on Form 709 and the potential tax that might come due ensure that the IRS doesn't get cut out because there's no property left to transfer after death.
What Is IRS Form 709?
IRS Form 709 is used to report taxable gifts made during a taxpayer's lifetime, and it also allocates the lifetime use of a taxpayer's generation-skipping transfer tax exemption.
You might have to file IRS Form 709 and pay gift tax if you make one or more transfers of cash or property, but there are several exceptions.
Who Uses Form 709?
The recipient of a gift isn't liable for this tax. The donor is responsible for paying the gift tax, and they must complete and file Form 709 with the IRS if their gifts aren't exempt.
The gift tax applies to transfers of property from one person to another whenever the recipient doesn't pay the fair market value in exchange.
If a parent were to transfer their home to their child for $1, gift tax would be payable on the difference between fair market value and what was actually paid. This would require filing IRS Form 709.
Extending someone a loan without interest is also considered a gift, as are forgiving a loan or cancelling a debt that someone owes you.
Where to Get Form 709
The IRS provides an interactive Form 709 on its website. You can complete it online and then save and print out your finished copy.
How to Fill Out and Read Form 709
You must file Form 709 whenever the total value of all gifts you make to a single individual within the same calendar year exceeds $15,000.
This $15,000 threshold is the annual exclusion in tax year 2020, and it's up from $14,000 in 2017.
Part I of Form 709 involves a series of questions and fill-in-the-blanks intended to identify you and the nature of your gift or gifts. Part II walks you through the process of computing any tax due.
Schedules A through D provide you with the option to use certain tax provisions to avoid paying gift tax.
For example, you can:
- Apply the $15,000 annual exclusion to a gift and only pay tax on the balance.
- Apply your gifts to the lifetime unified credit so you can potentially avoid paying gift tax entirely.
The Annual Exclusion
The "annual" in "annual exclusion" is an important distinction. Technically, you could give your child $15,000 on December 31, 2020, and another $15,000 on January 1, 2021, for a total of $30,000 without incurring gift tax, because the gifts were made in separate years.
You could also give your child $15,000 on December 31, and their spouse $15,000 on the same date, because the exclusion is per person per year.
You've made a taxable gift of $15,000 if you give your child $15,000 to buy a car, and another $15,000 to pay off their credit card debt in the same tax year—$30,000 total, minus the year's $15,000 exclusion.
You'd be required to file IRS Form 709 to report the second $15,000 gift, but you'd have an option to avoid paying the gift tax on that as well. The IRS also offers a pretty hefty lifetime exemption.
The annual exclusion was indexed for inflation in 1997, but it can only be increased in $1,000 increments, which means it can go up each year but not by more or less than $1,000. The exclusion for 2009, 2010, 2011, and 2012 was $13,000, and it's been $15,000 in 2018, 2019, and 2020.
"Splitting" Your Gifts
Married individuals can "split" their gifts between them to double the annual exclusion.
Your spouse might give your child $10,000 to buy a car, and another $10,000 to pay off their credit card debt. They can file Form 709 and report that they made $5,000 in taxable gifts—the balance over the $15,000 annual exclusion—or they can file Form 709 and report that the two of you have elected to divide the gifts between you.
In this case, each of you would be considered to have made a $10,000 gift, each coming in under the $15,000 annual exclusion. No tax would be due, even if the entire $20,000 were to come from an account in your spouse's sole name.
The Lifetime Unified Credit
The Internal Revenue Code also provides for a lifetime exemption from gift taxes. Using the $30,000 gift to your child as an example again, you can either pay the gift tax due on the $15,000 balance, or you can effectively charge the $15,000 balance to your lifetime exemption.
You can give away up to $11.58 million over the course of your lifetime as of 2020 without paying gift tax, but there's a catch. The gift tax and the estate tax share this exemption, thus the title "unified credit."
If you give your child $500,000 in gifts over the course of your lifetime, over and above the annual exclusion amounts, this is subtracted from your lifetime unified credit.
You'd be left with $11.08 million to shield your estate from taxation when you die: $11.58 million less the $500,000.
This lifetime exemption is also indexed for inflation, and it can change annually. It was $11.4 million in 2019.
Some Gifts Are Exempt
An unlimited marital deduction covers gifts made to spouses who are U.S. citizens. You can give as much to your spouse as you like, either before or after your death, free of tax.
Gifts made to a spouse who isn't a U.S. citizen are taxable, however. The threshold is $157,000 as of 2020, up from $155,000 in 2019. Gifts exceeding this amount are subject to the gift tax.
You can additionally pay someone's tuition or medical expenses without incurring the gift tax, as long as you pay the institution or the care provider directly. Gifts to charities and to political organizations are tax-exempt as well.
Consult with an estate planning attorney or an accountant if you're uncertain whether gifts you've made during the course of the year should be reported to the IRS on Form 709.
Can Form 709 Be E-Filed?
You'll have to send your Form 709 to the IRS the old-fashioned way. The IRS accepts only paper copies of this return, mailed in envelopes bearing USPS postage. The form can't be electronically filed.
Where to Mail Form 709
IRS Form 709 should be mailed to the Department of the Treasury,
Internal Revenue Service Center, Kansas City, MO 64999.
Requirements for Filing Form 709
You must file Form 709 if:
- You're going to pay the tax on your gifts over the annual exclusion.
- You're going to assign the gifts to your lifetime exemption.
- You want to split them with your spouse.
Form 709 lets the IRS know how you want to handle the tax. It's a way to memorializie the transaction, even if no tax is due.
IRS Form 709 is due on or before April 15 of the year following the year in which you make the taxable gifts. If you find that you have to file IRS Form 4868 to request an automatic six-month extension to file your personal income tax return, this form also extends the time you have to file IRS Form 709.
You don't have to take any additional steps or file an extra form.
You have until June 15, 2021, to file Form 709 for gifts you made in 2020 if you live in Texas, Louisiana, or Oklahoma. This is a one-time extension provided by the IRS in response to the 2021 winter storms. Taxpayers in other areas have until May 17, 2021, to file their federal 2020 taxes, including Form 709.
You can also file IRS Form 8892 to receive an automatic six-month extension to file IRS Form 709 if you don't have to extend the time to file your personal tax return.
- IRS Form 709 reports gifts made in excess of the annual allowed exclusion, and it tells the IRS whether you’re paying gift tax now or would like to defer it until the time of your death.
- Form 709 is filed by the donor of taxable gifts, who is also responsible for paying any associated gift tax.
- The form is five pages long, but you probably won't have to fill out all its schedules. It walks you through necessary calculations, and claiming a lifetime exemption is simply a matter of noting this in a box.
- Form 709 is due on Tax Day of the year following that in which taxable gifts are made, normally April 15, though the IRS issued an extension for 2020 taxes.