13.1 Gift Tax Return (Form 709)

Filing Requirement:

• A donor must file Form 709 for any gift(s) made unless all gifts are excluded.

• ACA is $53,89,800 of $13.61 Mil

• No filing required if all gifts are covered by:

  • The annual $18,000 per donee exclusion (for present interests only).

  • The charitable deduction.

  • The marital deduction (for a U.S. citizen spouse).

• Must file for any gift of a future interest, regardless of value.

• Gift splitting does not excuse the donor from filing.

Due Date:

• Due April 15th of the year following the gift.

• For the year of death, it's due with the estate tax return.

• An extension for filing an income tax return automatically extends the gift tax return due date.

Exclusions from Filing:

• Gifts to a U.S. citizen spouse generally do not require a return.

  • Exceptions: Gifts to a non-citizen spouse exceeding $185,000, or gifts of certain terminable interests.

• Charitable gifts alone do not require a return, but if mixed with noncharitable gifts, all must be reported.

Form 3520:

• A U.S. donee must report large gifts received from foreign persons (over $100,000 from an individual, over $19,570 from a corporation/partnership).

13.2 Gift Tax

Gift Tax Formula:

1. Gift Amount (FMV of all gifts in the year)

2. – Exclusions (Annual, Medical/Tuition, Gift Splitting)

3. – Deductions (Marital, Charitable)

4. = Taxable Gifts for Current Year

5. + Taxable Gifts for Prior Years

6. = Taxable Gifts to Date

7. x Tax Rate (Unified Transfer Tax Rates)

8. = Tentative Gift Tax

9. – [Prior Year’s Gifts × Current Tax Rates]

10. – Applicable Credit Amount (ACA)

11. = Gift Tax Liability

What Constitutes a Gift:

• A gift is the excess of FMV of the property transferred over the FMV of consideration received.

• A gift is complete when the donor gives up dominion and control.

  • Example: A gift from a joint account is complete only when the non-contributing party withdraws funds.

• Only inter vivos (during life) gifts are subject to gift tax.

• Below-market interest rate loans to a related party can create a gift of the imputed interest.

Basis of Gifted Property:

• The donee's basis is generally the donor's basis (carryover basis).

• Plus: The gift tax paid attributable to the appreciation of the property.

Annual Exclusion ($18,000 for 2024):

• Applies per donor, per donee.

• Only for gifts of a present interest (unrestricted right to immediate use, possession, or enjoyment).

• Future interests (e.g., remainders) do not qualify for the annual exclusion.

Other Exclusions:

• Medical or Tuition Costs:

  • Paid directly to the provider/institution.

  • Excludes: Room, board, and books.

• Political Contributions: Not taxable gifts.

• Support Payments: For a child or former spouse are not gifts.

Marital Deduction:

• Unlimited for gifts to a U.S. citizen spouse.

• Limited to $185,000 for gifts to a non-citizen spouse.

• QTIP (Qualified Terminable Interest Property) qualifies for the marital deduction if the spouse has a qualifying income interest for life.

Charitable Deduction:

• Unlimited for the FMV of property donated to a qualified charity.

Qualified Tuition Program (QTP / 529 Plan):

• A donor can elect to treat a $90,000 contribution as made ratably over 5 years to stay within the annual exclusion.

• Contributions to a QTP do not qualify for the education (tuition) exclusion.

13.3 Gift Splitting

General Rule:

• Married couples can elect to treat a gift made by one spouse to a third party as made one-half by each.

• This allows a couple to use two annual exclusions ($36,000 total) for a single gift.

Eligibility Requirements:

• Must be married at the time of the gift.

• Neither spouse can be a nonresident alien.

• Both must consent to the split (typically by signing the donor's Form 709).

Key Consequences:

• All gifts to third-party donees made by either spouse during the year must be split.

• There is no joint gift tax return; each spouse files their own Form 709.

• Both spouses are jointly and severally liable for the total gift tax.

Tax Computation & Credits

• Uses the Unified Transfer Tax rate schedule (same as estate tax).

• Rates: Start at 18% and top out at 40% for cumulative taxable gifts over $1 million.

• Applicable Credit Amount (ACA): A credit that effectively excludes a certain amount of lifetime gifts from tax. The tentative tax is reduced by this credit.

• The calculation is cumulative; tax on current gifts is based on the lifetime total of taxable gifts.