Is THAT Gift Taxable - IRS Form 709 - John R. Dundon II, Enrolled Agent
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Is THAT Gift Taxable – IRS Form 709

Is THAT Gift Taxable - IRS Form 709

Is THAT Gift Taxable – IRS Form 709

Is THAT Gift Taxable – IRS Form 709! The IRS instructions to Form 709 Gift Tax Return spell out the general rules for allocating the unified credit to prior gifts.

The federal government generally taxes transfers of wealth in three ways: through the estate tax, the gift tax and the generation-skipping transfer tax. Together these taxes make up what many of us refer to as the federal transfer tax system.

Many U.S. states ALSO impose estate and/or inheritance taxes. This post addresses federal implications with these soundbite quips:

  • For tax years 2018 thru 2021, the annual gift exclusion has been $15,000.
  • That means traditionally you can give up to $15,000 to as many different people as you want without being subject to gift tax rules – no IRS Form 709 required.
  • The basic or lifetime exclusion amount is $11,700,000 for 2021.
  • If you give someone money or property during your life, you may be subject to the federal gift tax. Most gifts are not subject to the gift tax.
  • If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year.
  • Gift tax returns (IRS Form 709) do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.
  • There is usually no tax if you make a gift to your spouse or to a charity.

The Difference Between Estate and Gift Taxes

  • Estate taxes and generation-skipping transfer taxes are paid on the contents of estates or proceeds of trusts.
  • Gift taxes are paid on transfers of wealth between living persons.

The general rules

Taxable estates are reported using IRS Form 706. However, there are many exceptions to this rule identified in the instruction set

Taxable gifts are reported using IRS form 709. However hereto, there are many exceptions to this rule identified in the instruction set. The following gifts are not taxable gifts and do not require the filing of IRS form 709:

  1. Gifts that are not more than the annual exclusion for the year,
  2. Tuition or medical expenses you pay directly to a medical or educational institution for someone,
  3. Gifts to your spouse,
  4. Gifts to a political organization for its use, and
  5. Gifts to charities.

Gift Splitting

You and your spouse can make a gift up to $30,000 in 2021 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if half of the split gift is less than the annual exclusion. You must also file a gift tax return on Form 709, if any of the following apply:

  • You gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the year.
  • You and your spouse are splitting a gift.
  • You gave someone (other than your spouse) a gift of a future interest that he or she cannot actually possess, enjoy, or receive income from until some time in the future.
  • You gave your spouse an interest in property that will terminate due to a future event.

However that is all about to prospectively change.

Presently working its way through Congress (as of September 27, 2021) are several proposals relating to estate, gift and generation-skipping transfer taxes anticipated to be effective January 1st 2022, including:

  • Reduce the federal estate and gift tax exemption from the current $11.7 million (inflation-adjusted for 2021) to $5 million (inflation-adjusted) effective January 1, 2022, instead of January 1, 2026. The inflation-adjusted exemption is anticipated to be about $6 million.
  • The 40% estate and gift tax rate have not changed & as of this posting date are not retroactive.
  • No limit on the number of annual exclusion gifts
  • Generation-skipping or dynasty trusts are not limited to 90 years if governed by state law that permits a longer duration.

For more information see

  • Publication 559. Guidance for survivors, executors and administrators. This publication is designed to help those in charge of the property (estate) of an individual who has died (decedent). It explains how to complete and file federal income tax returns and points out the responsibility to pay any taxes due.  IT is not a ‘substantial authority’ but offers a good start.
  • Form 706 PDF (PDF). Form to be filed on certain estates of a deceased resident or citizen. The catalog number for the instructions is 16779E. Prescribing Instructions are: IRC Sec. 6018; Regs. Sec. 20.6018-1.
  • Form 706 Instructions PDF (PDF). This item is used to assist in filing Form 706. Form 706 is used by the executor of a decedent’s estate to figure the estate tax imposed by Chapter 11 of the Internal Revenue Code. Instructions include rate schedules.
  • Form 8971 (PDF) – Information Regarding Beneficiaries Acquiring Property From a Decedent is filed by executors of an estate and other persons required to file Form 706 or Form 706-NA to report the final estate tax value of property distributed or to be distributed from the estate, if the estate tax return is filed after July 2015.  Form 8971, along with a copy of every Schedule A, is used to report values to the IRS.  One Schedule A is provided to each beneficiary receiving property from an estate.
  • Form 8971 Instructions (PDF).  This item is used to assist in filing Form 8971.
  • Form 709 (PDF). Form 709 is used to report transfers subject to the Federal gift and certain generation-skipping transfer (GST) taxes, and to figure the tax, if any, due on those transfers.
  • Form 709 Instructions (PDF), This item contains helpful information to be used by the taxpayer in preparation of Form 709, U.S. Gift Tax Return. Instructions include rate schedules.
  • Form 2848 (PDF) – Declaration of Representative and POA used with respect to any tax imposed by the Internal Revenue Code (except alcohol and tobacco taxes and firearms activities).
  • Form 2848 Instructions (PDF), This item contains general instructions for using and preparing Form 2848.
  • Form 4421 (PDF) – Executor’s Commissions and Attorney’s Fees
  • Form 4422 (PDF) Application for Certificate Discharging Property Subject to Estate Tax Lien
  • Form 1041 (PDF) – US Income Tax Return for Estates and Trusts
  • Form 1041 Instructions (PDF) – Instructions – US Income Tax Return for Estates and Trusts
  • Schedule K-1 (PDF) – Beneficiary’s Share of Income, Deductions, Credits
  • Section 7520 – Interest Rates to be used in valuing certain charitable transfers.
  • Form 4768 (PDF) – Application for Extension of Time Tofile a Return and/or Pay US Estate (& Generation-Skipping Transfer) Taxes. – Remember to file the second page and to be sure to fill in the decedent’s name and social security number.
  • OR – contact me.