Definition and Examples of 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.
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, ensures that the IRS doesn't get cut out because there's no property left to transfer after death.
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 to know about, as well.
Who Uses Form 709?
The recipient of a gift isn't liable for this tax, but rather the donor must be the amount owed. In addition, the gift giver is responsible for completing and filing Form 709 with the IRS if their gifts aren't exempt.
Generally, 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. That would require filing IRS Form 709.
Extending someone a loan without interest is also considered a gift, as are forgiving a loan or canceling 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 2021 (and the few years prior), and it will raise to $16,000 in 2022.
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 then 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 have given your child $15,000 on Dec. 31, 2020, and another $15,000 on Jan. 1, 2021, for a total of $30,000 without incurring gift tax, because the gifts were made in separate years.
The exclusion for the gift tax counts per person, each year. For example, you also could have given your child $15,000 on Dec. 31, 2021, and your spouse $15,000 on the same date, because the exclusion is per person per year.
Let's look at another example. 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.
Keep in mind that 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, 2020, and 2021. It will increase to $16,000 in 2022.
"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 that 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 pay the gift tax due on the $15,000 balance, or you can effectively charge the $15,000 balance to your lifetime exemption.
In 2021, you could give away up to $11.7 million over the course of your lifetime 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 $11.2 million to shield your estate from taxation when you die.
This lifetime exemption is also indexed for inflation, and it can change annually. It was $11.7 million in 2021, and will be $12.06 million in 2022.
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 $164,000 for 2022. Gifts exceeding this amount are subject to the gift tax.
You can 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 the gifts with your spouse
Form 709 lets the IRS know how you want to handle the tax. It's a way to memorialize 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 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 five-page form will help you with calculations and will guide you past the schedules that do not apply, Claiming a lifetime exemption is simply a matter of checking a box.
- Form 709 is due by Tax Day of the year following that in which taxable gifts are made, normally falling on April 15.