How Do I Know If I Need a Gift Tax Form 709?

Form 709 is the way to report to the IRS any gifts made in the prior year that are subject to the gift tax. Don’t worry, though. Most people will never pay any taxes on gifts made over the course of their lives.

The annual gift tax exemption amount is fairly substantial; the lifetime gift tax exemption is stratospheric.

In any given year, you may give gifts under the annual threshold to an unlimited number of people and be free from filling out IRS gift tax Form 709. If you do need to report one or more gifts, again, you’re probably never going to have to pay gift taxes.

What Counts Toward the Gift Tax?

For taxpayers filing in 2024, the gift tax applies to anything worth over $17,000 that they gave another person while receiving nothing, or less than full value, in return.

Whether it’s cash, real estate, stocks, or the use of or income from property, the recipient must be able to have full and immediate access to the gift for the gift to qualify for the annual exclusion.

For gifts of over $17,000 per person, you can apply an amount you gift to the current lifetime estate tax exemption of $12.92 million (if you’re married, your spouse is allowed the same).

Gifts can include assets in any class or type of income, such as:

• Real estate (including a down payment gift for a first home)
• Stocks
• Bonds
• Digital assets
• Cryptocurrencies
• NFTs
• Loans made with rates below IRS “applicable federal rates”
• Transfer of benefits of an insurance policy
• Student loan payments or other debt payments made for another person

Examples of Gift Tax Rules in Action

Let’s say you gave $117,000 to your mother in 2023 for her birthday. You would report $100,000 of the gift to the IRS, but federal tax law provides you with that unified gift and estate tax exemption ($12.92 million for tax year 2023) to offset any gift tax you may owe.

A married couple you know has three children and five grandchildren they like to shower with generosity. Each spouse may give eight gifts of $18,000 in 2024 to their family members without touching their combined $27.22 million lifetime gift tax exemption or filling out Form 709.

You want to buy a house from a family member. The sale price must equate to what it would be between strangers unless the seller provides a gift of equity — the difference between the selling price and the home’s current market value.

The relative could give you a gift of equity worth the annual exemption ($18,000 in 2024, or $36,000 for spouses “splitting” gifts) without reporting that sum to the IRS. (Another perk: Most lenders will allow the gift to count as the down payment in a non-arm’s-length transaction.) In this example, the seller must report any gift of over $18,000, or $36,000 for spouses, and apply it to their lifetime gift tax exclusion.

Does the Giver or Recipient Fill Out Form 709?

Form 709 is filled out by the giver of the gift. The donor is also responsible for paying the tax, whether it’s when the gift was given or after the giver’s death.

However, it is possible that the recipient may have to pay the tax if the donor does not.

How to Fill Out Form 709

Understanding what each part means and how to calculate the tax can be difficult. There are a lot of rules and exceptions to understand. When filling out Form 709, getting help from a tax professional is a good idea.

Form 709 is actually called the Gift (and Generation-Skipping Transfer) Tax Return. The generation-skipping transfer tax (GSTT) exemption applies to certain gifts that skip a generation (or are transferred to anyone more than 37.5 years younger than the donor), such as a gift from a grandparent to a grandchild. It also includes trusts.

The GSTT exemption is separate from the gift and estate tax exemption.

Determine If You Are Required to Fill Out Form 709

You do not need to fill out Form 709 if you made contributions for the following reasons:

• Payments made that qualify for the medical exclusion
• Payments made that qualify for the tuition exclusion
• Payments or transfers made to certain political parties or charities
• Payments to spouses, except for gifts over $175,000 made to non-U.S. citizen spouses (for 2023) and $185,000 (for 2024)

To reiterate, gifts under the annual exclusion amount ($17,000 per person in tax year 2023) do not need to be reported on Form 709.

For couples splitting gifts, if either spouse makes a gift that exceeds the couple’s combined annual gift tax exclusion, or if each spouse makes gifts that exceed the individual annual gift tax exclusion, both spouses will need to file a Form 709, and each will need to provide consent to split gifts on the other spouse’s return.

Each gift tax return should also disclose one-half of the amount over the combined annual gift tax exemption as a lifetime gift.

Part 1: General Information

The first part to fill out is your general information, which is the same as when you’re filing taxes for the first time or you’ve been filing for years. This includes your name, address, and whether or not you elect to split gifts between you and a spouse.

Schedule A

Head to the next page to fill out Schedule A, a computation of taxable gifts, including transfers in trust.

The filer must include information about the gift recipient, a description of the gift, and the value of the gift. Reporting taxable gifts is divided into:

• Part 1: Gifts subject only to gift tax
• Part 2: Direct skips
• Part 3: Indirect skips and other transfers in trust
• Part 4: Taxable Gift Reconciliation

Schedules B, C, D

Next, fill out Schedules B, C, and D (if applicable). Schedule B is for gifts from prior periods; Schedule C is for claiming unused amounts of the exclusion for a deceased spouse; and Schedule D is for computation of generation-skipping transfer tax.

Part 2: Tax Computation

You’ll enter amounts from Schedules A, B, C, and D back on the first page of Form 709. Your tax return preparation software or professional will calculate the amount of gift tax owed.

If filing a paper return, you’ll need to use the Table for Computing Gift Tax found in the instructions.

The executor of a decedent’s estate will use Form 706 to decide whether any estate tax is owed. Form 706 is also used to compute the GSTT on direct skips.

The Takeaway

Understanding annual and lifetime gift tax exemptions is easy, but filling out Gift Tax Form 709 may require help from a professional. Remember that you can make an unlimited number of gifts valued at less than the annual limit and skip reporting them to the IRS.

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

Whether you’re logging gifts you make or figuring out what to do with your tax refund, a money tracker app can help you track your spending, debt, and investments.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

More from MediaFeed:

The average American debt by age