When is a Gift Tax Return Required?

Gift tax return
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Certain wealth transfer could require the filing of a gift tax return.

Some people really like giving gifts and do so any chance they get.

That is their love language.

Others struggle to give presents for one reason or another, even on special occasions like birthdays and holidays.

Wherever you naturally fall when it comes to gift-giving, it is still likely your estate plan includes giving to others.

According to a recent The Street article titled “Do I Need to File a Gift Tax Return?,” certain gifts will require the filing of a Form 709 Gift Tax Return with the IRS.

Gift tax return is required for presents with value in excess of the annual exclusion.
You may need to file a gift tax return if you gift a car or other asset valued above the annual exclusion limit.

Why is this?

At this time, you can give $16,000 per recipient each year – without having to file a gift tax return – because of the annual gift tax exclusion.

However, if your gifts to a given donee exceed the annual gift tax exclusion within a given calendar year, then the amount in excess will reduce dollar for dollar your combined federal estate and lifetime gift tax exemption amount.

And that combined federal estate and lifetime gift tax exemption amount, that amount is $12.06 million for 2022, but it is scheduled to drop to around $6 million on January 1, 2026.

This combined amount represents the total wealth you may either give away with warm hands while living and/or through your estate at death.

Either way, at present $12.06 million is your number, not $12.07 million or $12.05 million.

By the way, this includes all gifts, not just cash gifts.

Consider a situation where you gift your adult child your old vehicle.

Because used cars are in high demand due to limited supply, the value of this gift may exceed the $16,000 exclusion limit.

If this same car is titled to both you and your spouse, you can both use each of your annual gift exclusions for this gift to your son.

In this case, you will not need to file a gift tax return if the fair market value of the car does not exceed $32,000.

Prior to making a tangible gift like a car, you should confirm the titling and the current value.

The housing market has also driven up the cost of homes.

If you are married, you can gift up to $32,000 as a couple to your adult child for a down payment without having to file a gift tax return.

If you are single, you can only gift $16,000 without having to file a gift tax return.

This rule even applies to college funding contributions to 529 plans, but with an interesting twist.

You may gift five (5) years worth of annual exclusion amount gifts in one fell swoop.

That is right, you may individually front load a 529 plan for your loved one with $80,000 (i.e., five years x $16,000) in a single year.

If you are married, then you may double that gift to $160,000.

Here is the catch: you must wait another six (6) years before making any annual exclusion gift to that particular donee.

Also, you must file a Form 709 Gift Tax Return for the year you made that lump sum gift for the 529 plan.

If you make payments directly to an educational institution (for books and tuition), hospital, or health care provider on behalf of another person, such payments are not considered gifts at all.

That is pretty cool, yes?

Warning: you must make the payment directly to the institution not to the person benefited for him to make the payment.

Do gift tax returns need to be filed when trusts are involved?

The answer depends on the type of trust.

“Crummey” trusts allows for the beneficiary of the trust to immediately withdraw gifts placed into the trust.

With this type of trust, an additional gift tax return may not need to be filed depending on the amount of the gift.


This ability to withdraw gifts to the trust, after being given notice of the gift and a reasonable time to act, can change the gift status to a current gift.

Because trusts are complex and sophisticated estate planning tools, you should work with an experienced estate planning attorney to ensure your actions align with your comprehensive plan.

What happens if you are required to file a gift tax return?

It is unlikely you will owe current taxes.

As noted above, the gifts will be offset by the combined federal estate and lifetime gift tax exemption amount.

So, what is the maximum gift you could make right now to an individual without paying a thin dime in federal gift taxes?

If you are feeling really generous, then that magic number is $12,076,000 (i.e., your $12.06 million combined federal estate and lifetime gift tax exemption amount, plus the $16,000 annual gift exclusion amount).

You can double that transfer if you are married, but either way you must file a gift tax return.

The IRS keeps track of these gifts in excess of the annual gift exclusion to determine where your gifts have been allocated and to determine how much of your estate will be taxable when you die.

Did you know right now is the best time to maximize your wealth transfers with warm hands?


Because the IRS has confirmed that it will not “claw back” gifts made under the current federal lifetime gift exemption when the amount reverts in the future, whether by default in 2026 or by design under the Biden administration.

Contact an experienced estate planning attorney about this opportunity sooner rather than later.

Reference: The Street (March 31, 2022) “Do I Need to File a Gift Tax Return?”

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