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How (And When) to File a Federal Gift Tax Return
Form 709, is required to be filed if a gift is made to someone for more than $13,000 in one year. Gifts between spouses are not required to file. Gifts can be made to an unlimited number of people in a year provided they are below the $13,000 per person annual exclusion.
The return is due on April 15 following the year of the gift. For example, for gifts made in 2011, the return is due on April 15, 2012.
This due date can be extended two ways. First, you can file for an extension on your individual income tax form using Form 4868. The other option is to file Form 8892, Application for Automatic Extension to File Form 709. The extension will extend the filing due date for six months. A return with a valid extension would be due on October 15.
Details of the gift(s) made must include:
- Donee name and address
- Relationship to the donor (if any)
- Description of the gift
- If the gift was securities, provide the CUSIP #
- If the gift was closely held entity, provide the tax identification number
- Cost basis
- Fair market value at the date of the gift
- Date of the gift
In addition to the annual exclusion of $13,000, a gift tax return is not required
for gifts paid for higher education or medical expenses. In order to qualify for this additional exclusion, the payment must be made directly to the college or the medical provider.
Customarily, there is no tax due with gift tax returns. Taxable gifts are reported and they will reduce the federal estate tax exclusion when you pass away. The federal estate tax exclusion is currently $5 million. The lifetime exclusion in 2011 is also $5 million. Essentially, you can use this exclusion during life or at death.
Married couples can elect to "gift splitting." This allows a married couple to treat a gift as if they each contributed one half of the gift. Therefore, a married couple could give one individual $26,000 in a year without having to file a gift tax return.
In addition to the federal estate tax return, a state return may be required. For example, in Connecticut a gift tax return, Form CT-709, will be required to be filed when a federal gift tax return is due.
By the way, the Internal Revenue Service keeps these returns. It appears they keep them for a very long time. They don't want taxpayers to make gifts during lifetime and not have them accounted for when someone passes away.
ACTION ITEM: Have you made a gift of cash, securities, real estate or personal property to someone for more than $13,000? If so, it's important to understand the gift tax return filing rules.
Thomas F. Scanlon, CPA, CFP®