Gifting assets to loved ones is one of the simplest ways of reducing your taxable estate. However, what may not be as simple is determining whether you need to file a federal gift tax return (Form 709) for the year in which those gifts are made. With the April 17 filing deadline approaching, now is the time to find out an answer.
When a Gift Tax Return is Required:
A Form 709 is required if you:
- Made gifts of present interests — such as an outright gift of cash, marketable securities, real estate, other tangible property, or payment of expenses other than qualifying educational or medical expenses (see below) — and the total value of all gifts to any one person exceeded the 2017 annual exclusion amount of $14,000 ($15,000 for 2018),
- Elected to split gifts with your spouse,
- Made gifts of present interests to a noncitizen spouse (who do not qualify for the unlimited marital deduction), if the total value of all gifts exceeded the $149,000 noncitizen spouse annual exclusion amount (for 2017),
- Made gifts of future interests — such as certain gifts in trust and certain unmarketable securities — in any amount, or
- Contributed to a 529 plan and elect to treat the transfers made in 2017 ratably over a 5 year period by using the donee’s future annual exclusion amounts.
When a Gift Tax Return is not Required:
No Form 709 is required if you:
- Paid qualifying educational or medical expenses on behalf of someone else directly to an educational institution or health care provider,
- Made gifts of present interests that fell below the 2017 annual exclusion amount of $14,000,
- Made outright gifts to a spouse who’s a U.S. citizen, in any amount, including gifts to trust(s) for the spouse’s benefit that do not qualify for qualified terminable interest property (“QTIP”) treatment, or
- Made charitable gifts and aren’t otherwise required to file Form 709 — if a return is otherwise required, charitable gifts should also be reported.
If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to do so. Adequate disclosure of the transfers reported on a gift tax return triggers the running of the statute of limitations, generally preventing the IRS from challenging your valuations more than three years after you file.
In some cases it’s even advisable to file a gift tax return to report nongifts - such as the sale of assets to a family member or a trust. Again, filing a gift tax return triggers the running of the statute of limitations and prevents the IRS from claiming, more than three years after you file the return, that the assets were undervalued and, therefore, partially taxable.
Contact us if you made gifts last year and are unsure if you should file a gift tax return. I can be reached at SDitman@BerdonLLP.com or contact to your Berdon advisor.
Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.