Rules for Filing a Gift Tax Return - Rodgers & Associates

Rules for Filing a Gift Tax Return

A client was recently discussing his strategy for gifting a piece of real estate to his daughter. He was trying to figure out how to, so that he didn’t exceed the gifting limits. Appar­ently avoiding the requirement to file a gift tax form was very important to him. But filing the return is no big deal.

You need to file a gift tax form (IRS Form 709, PDF) when you make a gift of more than $13,000 to any one person in the same year. You and your spouse can jointly give away up to $26,000 to the same person. You don’t have to pay gift taxes, and you don’t have to report the gift. Gifts above the $13,000 annual limit are called “taxable gifts”, but that doesn’t mean you owe gift tax. In addition to the annual gift limit, you also have a lifetime gift tax exemption that covers $5.12 million of cumulative gifts. You need to file form 709 to claim the exemption and keep track of your total lifetime gifts. The form is due at the same time as your income tax return.

There are some gifts that do not need to be reported. Gifts to your spouse are not reportable, as long as your spouse is a U.S. citizen. Paying tuition or medical bills for someone else are not reportable when you make the payment directly to a qualified insti­tution. Gifts to a qualified charity or political organi­zation are also not reportable, although you may want to claim the chari­table gift on Schedule A.

There are times when you will want to file a gift tax return even if the value of the gift is below the limit. This applies to gifts that are in the form of hard-to-value assets, such as stock in a privately held business. The IRS can challenge the value of these gifts should they audit your estate and you didn’t file a gift tax return. However, they only have 3 years to question the value on the gift tax return.