The Gift Tax Made Simple ...
The gift tax only kicks in after lifetime gifts exceed the
Lifetime Exemption Amount
The first thing to know about the federal gift tax is that gift givers—not gift recipients—have to pay it.
Thankfully, you won’t owe the tax until you’ve given away more than "Lifetime Exemption Amount" in cash or other assets
during your lifetime.
The lifetime exclusion was raised substantially. If you’re married, your spouse is entitled to
the same lifetime exemption amount as you. So actually owing the gift tax is not a concern for most folks. But
you may still have to file gift tax returns even though you don’t owe any tax. So please keep reading.
The annual gift tax exclusion provides additional shelter
The annual federal gift tax exclusion allows you to give away up to $15,000 as a single person, $30,000 as a married couple in the current tax year to as many people as
you wish without those gifts counting against your lifetime exemption.
Say you, as a single person, give two favored relatives $20,000 each this year and give another relative $10,000. The $20,000
gifts are called taxable gifts because they exceed the $15,000 annual exclusion. But you won’t actually
owe any gift tax unless you’ve exhausted your lifetime exemption amount. If you are instead a married couple in
this scenario, none of the gifts are taxable as neither exceeded $30,000.
Back to being a single person: Assuming you haven’t exhausted your lifetime exemption amount, the two taxable gifts simply reduce your lifetime exemption by $10,000 [($20,000 -
$15,000) x 2 = $10,000]. The other gift of $10,000 is ignored, because it’s below the $15,000 annual
exclusion for the current tax year.
If you give three individuals $15,000 each this year, these gifts are ignored because they don’t exceed the
annual exclusion.
Gift taxes and estate taxes are connected
You have a significantly higher federal estate tax exemption for the years 2018 to 2025, thanks to the 2017 Tax Cut and Jobs Act
signed into law by President Trump. You can leave up to that amount to relatives or friends free of any
federal estate tax. If you’re married, your spouse is entitled to the same lifetime exemption amount as you.
Gifts made during your lifetime will reduce your taxable estate. However, gifts in excess of the annual
exclusion also reduce your estate tax exemption. In the earlier example, the two $20,000 taxable gifts
made would reduce your estate tax exemption by $10,000,
based on the recently enacted changes in estate law. The $10,000 gift and the three $15,000 gifts
would not reduce your estate tax exemption.
Bottom line: Making annual gifts up to the exclusion ($15,000 per year as a single person, $30,000 as a married couple)
is a good way to reduce your taxable estate without any negative side effects.
Special rule for 529 plan contributions
Contributions to a 529 college savings plan are gifts to the future student. However, a special rule
allows you to make a lump-sum contribution and spread it over five years for gift tax purposes. For
example, you can contribute $75,000 before 2022 to jump-start a 529 college savings account for your child. If
you’re married, your spouse can do the same. You can spread the gift over 2018-2022 without incurring any
gift tax and without reducing your lifetime exemption amount.
Your spouse can spread his or her $75,000 gift over five years as well. The only
caveat: You can’t make any additional gifts to the same recipient during those years without using part of
your lifetime exemption.
Some gifts are tax-exempt
Among others, the following types of gifts are exempt from the federal gift tax so you can make unlimited
gifts in these categories without any gift tax or estate tax consequences and without having to file gift
tax returns:
- Gifts to IRS-approved charities
- Gifts to your spouse (assuming he or she is a U.S. citizen)
-
Gifts covering another person’s medical expenses, as long as you make the payments directly to medical
service providers
-
Gifts covering another person’s tuition expenses, as long as you make payments directly to the
educational institution. (Payments for room and board, books, and supplies don’t qualify for this
exception, but you can cover those costs by making a direct gift to the student under the annual
exclusion.)
You many need to file a gift tax return
If you make a taxable gift (one in excess of the annual exclusion), you must file Form 709: U.S. Gift
(and Generation-Skipping Transfer) Tax Return. The return is required even if you don’t actually owe any
gift tax because of the lifetime exemption. The return is due by April 15 of the year
after you make the gift—the same deadline as Form 1040. If you extend your 1040 to October 15, the
extended due date applies to your gift tax return too.
If you’re married, you can’t file a joint gift tax return. Each spouse must file a separate return if he
or she makes any taxable gifts. You can, however, choose to “split” gifts with your spouse. Making a split
gift allows you to take advantage of your annual gift tax exclusion plus your spouse’s exclusion for a
gift that is made entirely by you.
For example, say you gave $30,000 to your child this year. By treating it as a split gift, you can
completely shelter the gift with your $15,000 exclusion plus your spouse’s $15,000 exclusion. That way no
gift tax is due, and the gift doesn't reduce the lifetime gift tax exemption in effect for the current tax
year or the estate tax exemption for you or your spouse. If you choose to make a split gift, you must file
Form 709, and your spouse must consent to the arrangement.
Frequently Asked Questions on Gift Taxes
Below are some of the more common questions and answers about Gift Tax issues. You may also find
additional information in
Publication
559 or some of the other forms and publications offered on our Forms
page. Included in this area are the instructions to Forms 706 and 709. Within these instructions, you
will find the tax rate schedules to the related returns. If the answers to your questions can not be found
in these resources, we strongly recommend visiting with a tax practitioner.
Who pays the gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee
may agree to pay the tax instead. Please visit with your tax professional if you are considering
this type of arrangement.
What is considered a gift?
Any transfer to an individual, either directly or indirectly, where full consideration (measured
in money or money's worth) is not received in return.
What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this
rule. Generally, the following gifts are not taxable gifts.
- Gifts that are not more than the annual exclusion for the calendar year.
- Tuition or medical expenses you pay for someone (the educational and medical exclusions).
- Gifts to your spouse.
- Gifts to a political organization for its use.
In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.
May I deduct gifts on my income tax return?
Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income
tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable
contributions). If you are not sure whether the gift tax or the estate tax applies to your situation,
refer to Publication 559, Survivors,
Executors, and Administrators.
How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children
$11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013,
the annual exclusion applies to each gift. The annual exclusion for 2014, 2015, 2016 and 2017 is $14,000.
For 2018 and beyond, the annual exclusion is $15,000.
What if my spouse and I want to give away property that we own together?
You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each
donee (2002-2005) or $24,000 (2006-2008), $26,000 (2009-2012) and $28,000 on or after January 1, 2013
(including 2014, 2015, 2016 and 2017). In 2018 and beyond, the total for you and your spouse is $30,000.
What other information do I need to include with the return?
Refer to Form
709 (PDF), 709
Instructions and Publication 559. Among other items listed:
- Copies of appraisals.
- Copies of relevant documents regarding the transfer.
-
Documentation of any unusual items shown on the return (partially-gifted assets, other items relevant
to the transfer(s)).
What is "Fair Market Value?"
Fair Market Value is defined as: "The fair market value is the price at which the property would
change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to
sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of
property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is
the fair market value of an item of property to be determined by the sale price of the item in a market
other than that in which such item is most commonly sold to the public, taking into account the location
of the item wherever appropriate." Regulation §20.2031-1.
Whom should I hire to represent me and prepare and file the return?
The Internal Revenue Service cannot make recommendations about specific individuals, but there are
several factors to consider:
- How complex is the transfer?
- How large is the transfer?
- Do I need an attorney, CPA, Enrolled Agent (EA) or other professional(s)?
For most simple, small transfers (less than the annual exclusion amount) you may not need the services of
a professional.
However, if the transfer is large or complicated or both, then these actions should be considered; It is
a good idea to discuss the matter with several attorneys and CPAs or EAs. Ask about how much experience
they have had and ask for referrals. This process should be similar to locating a good physician. Locate
other individuals that have had similar experiences and ask for recommendations. Finally, after the
individual(s) are employed and begin to work on transfer matters, make sure the lines of communication
remain open so that there are no surprises.
Finally, people who make gifts as a part of their overall estate and financial plan often engage the
services of both attorneys and CPAs, EAs and other professionals. The attorney usually handles wills,
trusts and transfer documents that are involved and reviews the impact of documents on the gift tax return
and overall plan. The CPA or EA often handles the actual return preparation and some representation of the
donor in matters with the IRS. However, some attorneys handle all of the work. CPAs or EAs may also handle
most of the work, but cannot take care of wills, trusts, deeds and other matters where a law license is
required. In addition, other professionals (such as appraisers, surveyors, financial advisors and others)
may need to be engaged during this time
Do I have to talk to the IRS during an examination?
You do not have to be present during an examination unless IRS representatives need to ask
specific questions. Although you may represent yourself during an examination, most donors prefer that the
professional(s) they have employed handle this phase of the examination. You may delegate authority
for this by executing Form 2848 "Power of Attorney."
What if I disagree with the examination proposals?
You have many rights and avenues of appeal if you disagree with any proposals made by the IRS.
See Publication
1 and Publication
5 (PDF) for an explanation of these options.
What if I sell property that has been given to me?
The general rule is that your basis in the property is the same as the basis of the donor. For
example, if you were given stock that the donor had purchased for $10 per share (and that was his/her
basis), and you later sold it for $100 per share, you would pay income tax on a gain of $90 per share.
(Note: The rules are different for property acquired from an estate).
Most information for this page came from the Internal Revenue Code: Chapter 12--Gift Tax (generally
Internal Revenue Code §2501 and following, related regulations and other sources)
Can a married same sex donor claim the gift tax marital deduction for a transfer to his or her
spouse?
For federal tax purposes, the terms “spouse,” “husband,” and “wife” includes individuals of the
same sex who were lawfully married under the laws of a state whose laws authorize the marriage of two
individuals of the same sex and who remain married. Also, the Service will recognize a marriage of
individuals of the same sex that was validly created under the laws of the state of celebration even if
the married couple resides in a state that does not recognize the validity of same-sex marriages.
However, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals
(whether of the opposite sex or the same sex) who have entered into a registered domestic partnership,
civil union, or other similar formal relationship recognized under state law that is not denominated as a
marriage under the laws of that state, and the term “marriage” does not include such formal
relationships.
Gifts to your spouse are eligible for the marital deduction.
For further information, including the timeframes regarding filing claims or amended returns, see Revenue
Ruling
2013-17 (PDF).
Revenue Ruling 2013-17 (PDF), along with updated Frequently
Asked Questions for same-sex couples and updated FAQs
for registered domestic partners and individuals in civil unions, are available today on IRS.gov. See
also Publication 555, Community Property.
How do I secure a gift tax return account transcript?
The IRS will provide an account transcript for gift tax returns when Form 4506-T, Request for
Transcript of Tax Return, is properly completed and submitted with substantiation. The transcript may be
requested via fax or by mail using Form 4506-T. Upon receipt and verification (including matching current
taxpayer and taxpayer representative records with the information on the submitted Form 4506-T), a
hardcopy transcript will be mailed to the address of record. Incomplete or unsubstantiated
requests will be rejected, and a Notice will be sent to the Requester. No fees apply.
Form 4506-T,
Request for Transcript of Return, and instructions (PDF) are available on IRS.gov. Form 4506-T has
multiple uses and special attention must be taken when completing the form for a gift tax inquiry.
Complete the form using the printed instructions paying close attention to the following:
Lines 1a and 1b: Enter the Donor's information including an SSN.
Lines 2a and 2b: Leave blank.
Line 3: Enter Donor's current address if living; estate representative's name, title and address
if donor is deceased. The address provided must match the official IRS record.
Line 4: Leave blank.
Line 6: Enter "Form 709."
Line 6 a-c: The ONLY option available for gift tax is 6b. DO NOT make any other selections
in items 6-8.
Line 9: Enter the tax period (MMDDYYYY). If the tax period is unknown, refer to the "Written
Requests" section below.
Line for Attestation Clause: The requester must read and agree to the attestation clause on Form
4506-T. This box must be checked to have Form 4506-T processed.
Signature/Title Requirements: The Requester must be authorized to receive the information. If the
taxpayer listed on Line 1 is the Requester, no further documentation is necessary. If the Requester is
other than the taxpayer shown in Line 1, the Title portion of the signature section must be completed
and substantiated; see Documentation below.
Documentation: Please note that in every situation, the individual making the request for information
must be authenticated.
-
If a Personal Representative/Executor/Executrix is signing the information request, then, Letters
Testamentary, Letters of General Administration or another similar document from the Court must be
provided with the request for information. Enter either "Personal Representative" or "Executor" or
"Executrix" in the Title section.
-
If there is no probate and a surviving spouse is requesting the data, then a statement that no probate
will be commenced, and a copy of a marriage certificate or other similar document is necessary to be
provided with the request for information. Enter "Spouse" in the Title section.
-
If there is no probate and the estate is administered under the control of a Trustee, then a statement
that no probate will be commenced and a Certificate of Trust or a copy of the complete Trust Instrument
must be provided with the request for information. Enter "Trustee of the _______ Trust" in the Title
section.
-
If a Trust Officer signs the request for information, the Bank and/or Trust Company must substantiate
its authorization to receive taxpayer information, including identification the specific Trust Officer.
Enter "Trust Officer" in the Title section.
-
If a tax professional signs the request for information, provide a copy of the initial Form
2848 submitted to the IRS for the same taxpayer and the same tax year. A new Power of Attorney is not
enough; the record must be established on CAF prior to sending the request for information. For
additional information, refer to the "A Note about Form 2848, Power of Attorney" section below. Enter
"Power of Attorney" in the Title section.
General Tip: Altered forms will not be accepted. This includes white out, pen and ink changes, or type
overs of any kind.
The instructions for Form 4506-T provides a chart directing where to mail or fax the request based upon
the state in which the taxpayer was domiciled. Choose the RAIVS Team in either Ogden, UT or Cincinnati,
OH.
Written Requests
It is also acceptable to send a written request to the IRS to secure a gift tax transcript. This method
should be reserved for taxpayer's that do not have record of which tax year(s) a gift tax return was
filed. The written request must include language requesting a determination of "All Gift Tax Returns
Filed" for the taxpayer. Use the same fax number or mailing address provided in the Form 4506-T
Instructions. The requester must be substantiated with documentation as outlined above for a request using
Form 4506-T. Unsubstantiated requests will be rejected.
A Note about Form 2848, Power of Attorney
Please be advised that a duplicate, incomplete, and/or unsubstantiated Form 2848 can result in a
rejection of information requests. These tips are provided to reduce the potential for rejection of Form
4506-T.
-
Form 2848, Power of Attorney (PDF), in accordance with the most current instructions for each
taxpayer.
Use the same spelling and address for the taxpayer on all future correspondence.
-
Send one complete original with substantiation to the CAF Unit as indicated on the instructions for
Form 2848. This is the only way the Form 2848 is recorded.
-
For subsequent correspondence with the IRS for the same taxpayer, provide a copy of the official Form
2848. Do not make any alterations; do not provide an original signature; simply label it as a "Copy."
The official filing will be electronically verified by IRS based on the data originally filed with the
CAF Unit.
-
Do not send a Form 2848 with future correspondence that has not been sent to the CAF Unit for
processing. Note that signature dates and other items from the official Form 2848 are recorded and will
be verified against any new data requests.
-
To update the CAF with a tax professional's address or telephone number, do not submit a new Form
2848. Instead, send written notification that includes the new information and the representative's
signature to the location where the original Form 2848 was filed.
- The CAF system is only updated with documents received at the CAF Unit.
-
Although not mandatory, it may be beneficial to check "Other acts authorized" at Line 5a and write in
"Request and Receive IRS Transcripts."
How do I secure a copy of a gift tax return?
The IRS will provide a copy of a gift tax return when Form 4506, Request for Copy of Tax
Return, is properly completed and submitted with substantiation and payment. Upon receipt and
verification (including matching current taxpayer and taxpayer representative records with the information
on the submitted Form 4506-T), a copy of the original tax return will be mailed as requested. Incomplete
or unsubstantiated requests will be rejected and a Notice will be sent to the Requester. A $50.00 fee per
tax return applies.
Form 4506,
Request for Copy of Tax Return (PDF), is used to request a copy of previously filed tax returns
with all attachments. The form and instructions are available on IRS.gov. Form 4506 has multiple uses and
special attention must be taken when completing the form for a gift tax inquiry. Complete the form
using the printed instructions paying close attention to the following:
Lines 1a and 1b: Enter the Donor's information including an SSN.
Lines 2a and 2b: These lines should remain blank.
Line 3: Enter Donor's current address if living; estate representative's name, title and address
if donor is deceased.
Line 4: Leave blank.
Line 5: Enter a third party name and address to receive a copy of the requested information, if
appropriate. This line may be left blank if the requester does not want third party involvement.
Line 6: Enter "Form 709."
Line 7: Enter up to eight tax periods per form using this format MM/DD/YYYY.
Line for Attestation Clause: The requester must read and agree to the attestation clause on Form
4506. This box must be checked in order to have Form 4506 processed.
Signature/Title Requirements: The Requester must be authorized to receive the information. If the
taxpayer listed in Line 1 is the Requester, no further documentation is necessary. If the Requester is
other than the taxpayer shown in Line 1, the Title portion of the signature section must be completed
and substantiated; see Documentation below.
Documentation: Please note that in every situation, the individual making the request for information
must be authenticated.
-
If a Personal Representative/Executor/Executrix is signing the information request, then, Letters
Testamentary, Letters of General Administration or another similar document from the Court must be
provided with the request for information. Enter either "Personal Representative" or "Executor" or
"Executrix" in the Title section.
-
If there is no probate and a surviving spouse is requesting the data, then a statement that no probate
will be commenced and a copy of a marriage certificate or other similar document is necessary to be
provided with the request for information. Enter "Spouse" in the Title section.
-
If there is no probate and the estate is administered under the control of a Trustee, then a statement
that no probate will be commenced and a Certificate of Trust or a copy of the complete Trust Instrument
must be provided with the request for information. Enter "Trustee of the _______ Trust" in the Title
section.
-
If a Trust Officer signs the request for information, the Bank and/or Trust Company must substantiate
its authorization to receive taxpayer information, including identification the specific Trust Officer.
Enter "Trust Officer" in the Title section.
-
If a tax professional signs the request for information, provide a copy of the initial Form 2848
submitted to the IRS for the same taxpayer and the same tax year. A new Power of Attorney is not
sufficient; the record must be established on CAF prior to sending the request for information. For
additional information, refer to the "A Note about Form 2848, Power of Attorney" section below.
Enter "Power of Attorney" in the Title section.
General Tip: Altered forms will not be accepted. This includes white out, pen and ink changes, or
type overs of any kind.
The instructions for Form 4506 provide a chart directing where to mail the request based upon the state
in which the taxpayer was domiciled. Choose the RAIVS Team in either Ogden, UT or Cincinnati, OH.
Make your check or money order payable to "United States Treasury." Enter the Donor's SSN and "Form 4506
Request" on the check or money order. Allow 75 calendar days for the IRS to process the request for a copy
of a tax return.
A Note about Form 2848, Power of Attorney
Please be advised that a duplicate, incomplete, and/or unsubstantiated Form 2848 can result in a
rejection of information requests. These tips are provided to reduce the potential for rejection of Form
4506.
-
File only one official Form
2848, Power of Attorney (PDF), in accordance with the most current instructions for each
taxpayer. Use the same spelling and address for the taxpayer on all future correspondence.
-
Send one complete original with substantiation to the CAF Unit as indicated on the instructions for
Form 2848. This is the only way the Form 2848 is recorded.
-
For subsequent correspondence with the IRS for the same taxpayer, provide a copy of the official Form
2848. Do not make any alterations; do not provide an original signature; simply label it as a "Copy."
The official filing will be electronically verified by IRS based on the data originally filed with the
CAF Unit.
-
Do not send a Form 2848 with future correspondence that has not been sent to the CAF Unit for
processing. Note that signature dates and other items from the official Form 2848 are recorded and will
be verified against any new data requests.
-
To update the CAF with a tax professional's address or telephone number, do not submit a new Form
2848. Instead, send written notification that includes the new information and the representative's
signature to the location where the original Form 2848 was filed.
- The CAF system is only updated with documents received at the CAF Unit.
-
Although not mandatory, it may be beneficial to check "Other acts authorized" at Line 5a, and write in
"Request and Receive IRS Transcripts."
A bigger story
For more information, see IRS Publication 950: Introduction to Estate and Gift Taxes. See also the
instructions for Form 709. You can find these documents on the IRS website at www.irs.gov.