Gift tax (Form 709)

The federal gift tax applies to the giver (donor), not the recipient. If you transfer money or property to someone without receiving full value in return, you may have made a taxable gift.

48 steps across 12 sections

1. TCJA History and the "One Big Beautiful Bill"

  • The Tax Cuts and Jobs Act (TCJA) of 2017 roughly doubled the lifetime exemption from ~$5.49 million to ~$11.18 million (2018), indexed for inflation.
  • The TCJA increase was temporary, originally scheduled to sunset on January 1, 2026, which would have reverted the exemption to approximately $7 million (the pre-TCJA $5 million base, adjusted for i...
  • What actually happened: The One Big Beautiful Bill Act eliminated the TCJA sunset provision and permanently set the exemption at $15 million per person for 2026, indexed for inflation going forward.
  • The exemption is unified — it covers both lifetime gifts and your estate at death. Every dollar of lifetime exemption you use for gifts reduces your estate tax exemption dollar-for-dollar.

2. Who Must File

  • Gave more than $19,000 to any single person (in cash, property, or other assets)
  • Elected gift splitting with your spouse (even if neither spouse's gifts exceed $19,000)
  • Made a gift of a future interest (e.g., remainder interest in a trust) of any amount
  • Made a generation-skipping transfer (gifts to grandchildren or persons 2+ generations below you)

3. When to File

  • Deadline: April 15 of the year following the gift (same as your income tax return)
  • Extension: If you file Form 4868 (income tax extension), it automatically extends your Form 709 deadline to October 15
  • No separate extension form needed for Form 709 — the income tax extension covers it
  • Form 709 is filed separately from your income tax return (do not attach it to your 1040)
  • Calendar year only: Unlike some tax forms, Form 709 is always filed on a calendar-year basis

4. How to File (Step by Step)

  • Gather information: Donor and recipient details, description of each gift, fair market value (FMV) on date of gift, and any consideration received
  • Complete Part 1 (General Information): Your name, SSN, address, citizenship status, and whether you are electing gift splitting
  • Complete Part 2 (Tax Computation): This calculates any tax owed after applying your remaining lifetime exemption
  • Complete Part 3 (Gift Splitting Consent): If applicable, the consenting spouse signs here (new separate consent process for 2024+ returns)
  • Complete Schedule A (Computation of Taxable Gifts): List each gift — donee name, relationship, description, date, value. Separate sections for:
  • Part 1: Gifts subject only to gift tax
  • Part 2: Gifts subject to both gift tax and generation-skipping transfer tax
  • Part 3: Gifts subject only to generation-skipping transfer tax
  • Complete Schedule B: Report prior-year taxable gifts from all previous Form 709 filings (cumulative tracking)
  • Complete Schedule C (if applicable): Generation-skipping transfer tax computation

5. Valuation

  • Gifts are valued at fair market value (FMV) on the date of the gift
  • For publicly traded stock: use the average of the high and low prices on the gift date
  • For real estate: a qualified appraisal is recommended (and may be required for large gifts)
  • For closely held business interests: professional valuation is strongly recommended

6. Requirements

  • You must be legally married at the time of the gift (and both must be U.S. citizens or residents)
  • Both spouses must consent to split all gifts made during the calendar year — you cannot selectively split some gifts
  • Both spouses must file Form 709 when gift splitting is elected, even if neither spouse individually exceeded $19,000
  • You cannot split gifts if either spouse was a nonresident alien during the year

7. New Consent Process (2024 Returns Forward)

  • Previously, the consenting spouse signed on the donor spouse's Form 709
  • Now, the consenting spouse must file a separate notice of consent (Part III of their own Form 709)
  • The notice must be signed, dated, and include a statement that the consenting spouse elects to treat all third-party gifts as made one-half by each spouse

8. A. Qualified Education Payments (Unlimited)

  • Tuition payments made directly to a qualifying educational institution
  • Covers tuition at any level: K-12, college, graduate school, vocational
  • Does NOT cover: room and board, books, supplies, fees, meal plans, or other expenses
  • Critical rule: The payment must go directly from you to the institution. Reimbursing the student or giving them money to pay tuition counts as a regular gift

9. B. Qualified Medical Payments (Unlimited)

  • Medical expenses paid directly to the medical provider or institution
  • Covers: hospital bills, surgeries, doctor visits, prescription drugs, long-term care, health insurance premiums
  • Critical rule: Same as education — you must pay the provider directly. Giving money to the person to pay their own medical bills is a regular gift
  • Can be for anyone — not limited to relatives

10. C. Gifts to Your Spouse (Unlimited Marital Deduction)

  • Unlimited gifts to a spouse who is a U.S. citizen are completely tax-free via the marital deduction
  • Non-citizen spouse: limited to $194,000 per year (2026) without triggering gift tax

11. D. Charitable Gifts

  • Gifts to qualified 501(c)(3) charitable organizations are exempt from gift tax
  • May also qualify for an income tax deduction (reported on Schedule A of Form 1040, not on Form 709)

12. E. Political Contributions

  • Gifts to political organizations (as defined in Section 527) are exempt from gift tax
  • No limit on the gift tax exclusion (though campaign finance laws have separate limits)

Common Mistakes

  • Not filing Form 709 when gift splitting
  • Confusing the annual exclusion with the lifetime exemption
  • Reimbursing someone instead of paying directly
  • Forgetting to track cumulative gifts
  • Not filing because "I won't owe tax"

Pro Tips

  • Use annual exclusions strategically
  • Pay tuition and medical bills directly
  • Front-load 529 contributions
  • Document everything
  • Consider timing large gifts

Sources

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