What Is IRS Form 709?
IRS Form 709 Explained
IRS Form 709 is the United States Gift and Generation-Skipping Transfer Tax Return required by the IRS to report taxable gifts you might make during your lifetime. It 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 a gift tax.
Large estates are taxed on their value when someone dies and leaves their property to beneficiaries. A clever benefactor could effectively 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 ensures that the IRS doesn't get cut out of the equation because there's no property left to transfer after death.
What Is IRS Form 709?
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. You might have to file IRS Form 709 and pay a 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 are not exempt.
The gift tax applies to transfers of property from one person to another whenever the recipient doesn't pay fair market value. A parent might transfer their home to their child for $1. A gift tax would be payable on the difference between fair market value and what was actually paid, and this would require filing IRS Form 709. Extending someone a loan at zero interest is also considered a gift.
Where to Get Form 709
The IRS provides an interactive Form 709 on its website. You can complete it online, 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 the gifts you make to a single person within the same calendar year exceeds $15,000 as of 2020. This $15,000 threshold is referred to as the annual exclusion, 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 a gift tax. For example, you can apply the $15,000 annual exclusion to a gift and only pay tax on the balance, or apply your gifts to the lifetime unified credit so you can potentially avoid paying a gift tax entirely.
Completing Form 709 accurately requires an understanding of these tax-avoiding provisions.
The Annual Exclusion
The "annual" in annual exclusion is an important distinction. Technically, you could give your daughter $15,000 on December 31, 2020 and another $15,000 on January 1, 2021 for a total of $30,000 without incurring a gift tax. The gifts were made in separate calendar years.
You could also give your daughter $15,000 on December 31 and her husband $15,000 on the same date because the exclusion is per person per year.
But if you give her $15,000 to buy a car and another $15,000 to pay off her credit card debt in the same year, you've made a taxable gift to her of $15,000—$30,000 total minus the year's $15,000 exclusion, because that portion is tax-free. You're required to file IRS Form 709 to report that $15,000 gift, but you have an option to avoid paying the gift tax on that other $15,000 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. This means it can go up each year, but not by more than $1,000. The exclusion for 2009, 2010, 2011, and 2012 was $13,000.
"Splitting" Your Gifts
Married individuals can "split" their gifts between them to double the annual exclusion. Your spouse might give your son $10,000 to buy a car and another $10,000 to pay off his credit card debt. Your spouse has two options. They can file Form 709 and report that they made $5,000 in taxable gifts to your son—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 is 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 came 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 daughter 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 the 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 son $500,000 in gifts over the course of your lifetime over and above the annual exclusions, 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. As the name implies, you can give as much to your beloved as you like, either before or after your death, free of taxation, as long as you're married.
Gifts made to a spouse who is not 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 a 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 to 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 good old-fashioned way. The IRS accepts only paper copies of this return, mailed in envelopes bearing USPS. postage. It can't be electronically filed.
Where to Mail Form 709
IRS Form 709 should be mailed to the Internal Revenue Service Center, ATTN: E&G Stop824G, 7940 Kentucky Drive, Florence, KY 41042-2915.
Requirements for Filing Form 709
You must file Form 709 whether you're going to pay the gift tax on your gifts over the annual exclusion, or if you're going to chalk the gifts up to your lifetime exemption or split them with your spouse. Form 709 lets the IRS know how you want to handle the tax. It's a way of memorializing 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 made the taxable gifts. If you find that you have to file IRS Form 4868 to request an automatic six-month extension of time to file your personal income tax return, this form also extends the time you have to file IRS Form 709.
You can also file IRS Form 8892 to receive an automatic six-month extension to file IRS Form 709 even 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 a 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, and the donor is also responsible for paying any associated gift tax.
- The form is five pages long, but you most likely will not 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 were made, normally April 15.
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