Filing a Gift Tax Return

What is a gift tax return?

When you transfer money or property to another person or entity without receiving something of at least equal value in return, you are making a gift. In general, a gift of more than $18,000 (in 2024) to any one recipient (donee), other than a gift to a spouse or qualified charity, is considered a taxable gift and you must file a gift tax return. The tax-free gift amount is doubled if you elect to treat gifts as having been made jointly by you and your spouse (both you and your spouse must be U.S. citizens).

The gift tax return lets the IRS know the nature and value of the gifts you made, the identity of the donee, how much of your applicable exclusion amount you have used up, and how much gift tax you owe (if any). The gift tax return must be filed by April 15 of the year following the year in which the gift was made. For example, a gift tax return must be filed by April 15, 2024, for taxable gifts made in 2023. A six-month filing extension is available. The late filing penalty is 5% of the tax due per month, up to 25%. This is in addition to any late payment penalty.

Only individuals can file a gift tax return. If a trust, estate, or partnership makes a gift, the individual beneficiaries, partners, or stockholders are considered the donors and may be responsible for any gift taxes. Gift tax returns cannot be filed jointly, even in the case of a split gift made by a husband and wife.

How does gift tax work?

Gift tax is treated as follows:

  • Gift tax paid must be paid annually on taxable gifts made during the previous year. You must file a gift tax return and pay gift tax due, if any, by April 15 of the year following the year in which you made the gift.
  • When you die, all the taxable gifts you made during your lifetime are added together with your gross taxable estate to calculate any estate tax owed. This pushes your net taxable estate into a higher tax bracket. Any gift tax you paid are deducted from any estate tax that is owed.
  • The top marginal gift tax rate is 40% (in 2024), applicable to amounts in excess of $13,610,000 (in 2024, $12,920,000 in 2023) plus any unused deceased spousal exclusion amount.

Examples of taxable gifts

Following are some examples of transfers that would be considered taxable gifts to the extent that they exceed the annual gift tax exclusion amount.

Gift of property

You give your best friend a new car as a wedding gift. You have given a gift of the value of the car.

Joint ownership of property

You make your cousin joint owner of your 52-foot sailboat. You have given a gift of one-half the value of your boat.

Irrevocable transfer to a trust

You make an irrevocable transfer of property to a trust for the benefit of your son. If you do not retain any control over the income from the trust, you have made a gift of the value of the present income interest. If you do not retain any control over the property in the trust, you have also made a gift of the value of the future remainder interest in the property.

Below-market loan

You loan your daughter money for the down payment on her house, which she is to repay over six years with no interest. Each year, you are considered to have made a gift of the interest that would be charged using the applicable federal rate. In addition, you must pay income taxes on the amount of the imputed interest, unless the loan in question falls under one of the exceptions to the imputed interest rules.

Debt forgiveness

Assume the same as the example above, except that after three years, you forgive the unpaid loan balance. Forgiveness of debt is a gift to the extent of the unpaid principal balance. Since it is a gift, your daughter does not realize any debt forgiveness income.

How do you calculate gift tax liability?

Because gift taxes are part of the unified transfer system, gift tax rates are the same as estate tax rates. The actual tax computation is performed in Part 2 of Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

How do you file a gift tax return?

The following is an explanation of how to fill out Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return and the various attachments.

This discussion is intended for informational purposes only. Do not attempt to complete a gift tax return based solely on the information provided. Please consult Form 709 and the instructions to Form 709 for further information. You may also wish to consult a tax professional before filing a gift tax return.

Part 1 — General Information

Part 1 of Form 709 contains basic information about the donor, including name, address, Social Security number, and so on. In addition, this part establishes whether all gifts made by a husband or wife to a third party are to be considered split gifts.

Part 2 — Tax Computation

This section must be completed last. Using information from Schedules A, B, C, and D, your gift tax liability is calculated in Part 2. After calculating your total taxable gifts for this period and prior periods, using Schedules A and B, you will compute the tax payable on the total amount. You will then subtract the tax payable on gifts from prior periods from the total taxes payable to determine the taxes that would be payable on gifts from the current period. Next, you will calculate your remaining applicable credit amount (the unified credit based on the applicable exclusion amount including any deceased spousal unused exclusion amount (DSUEA) from Schedule C). Add the smaller of either the taxes payable on gifts from the current period or your remaining applicable credit amount, plus any credit for foreign gift taxes to determine your total credits. Any taxes payable that are not canceled out by this credit are added to the generation-skipping transfer (GST) tax calculated on Schedule D to determine the taxes owed or refund due.

Schedule A — Computation of Taxable Gifts

Schedule A is used to calculate the amount of your taxable gifts made during the tax year at issue. After you determine which gifts are subject to gift tax and therefore should be listed on Schedule A, you must divide these gifts into three categories. Gifts subject only to the gift tax (i.e., gifts made to nonskip persons) are entered in Part 1, while direct-skip gifts subject to both gift and generation-skipping transfer tax (i.e., gifts made to skip persons) are entered in Part 2. In Part 3, you will report indirect-skip gifts, i.e., gifts that are currently subject to gift tax and may later be subject to generation-skipping transfer tax. These types of gifts include transfers to a trust where beneficiaries are skip persons. In Part 4, you will reconcile your taxable gifts with those of your spouse and calculate any deductions.

Schedule B — Gifts from Prior Periods

If you filed gift tax returns for prior periods, you must complete Schedule B by listing them in chronological order. Information to be provided includes the calendar year (or quarter) in which the return was filed, the IRS office where the return was filed, the amount of applicable credit (or unified credit) used against the gift tax, and the amount of the taxable gifts.

Schedule C — Deceased Spousal Unused Exclusion Amount (DSUEA)

Schedule C is used to determine the DSUEA and applicable credit received from prior spouses. You will first provide information about the DSUEA received from the last deceased spouse and other predeceased spouses and list the DSUEA applied to lifetime gifts. You will add together your basic exclusion amount and the total DSUEA applied to lifetime gifts, and convert this amount into an applicable credit amount.

Schedule D — Computation of Generation-Skipping Transfer Tax

Schedule D is used to compute the taxes on any generation-skipping transfers. You will first provide information about the transfers themselves. Next, you must determine the exemption amount available, the exemption amount being claimed, and the exemption still available for future generation-skipping transfers. Finally, you will calculate the taxes due on these transfers.