When Does a Gift Require a Gift Tax Return?

written by Cara Stewart

If you made a big gift before the end of 2016, you may be wondering what your gift tax liability may be. You may have to file a federal tax return even if you do not owe any gift tax. Continue reading to learn more about when to file a federal gift tax return.

When you must file

Generally, you must file a gift tax return, Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply to gifts you have made in 2016:

• Gifts you give to another person (other than your spouse) exceed the $14,000 annual gift tax exclusion for 2016
• You and your spouse are splitting a gift, regardless of amount
• You gave someone (other than your spouse) a gift of a future interest that he or she cannot possess, enjoy, or receive income from until sometime in the future

Gifts that do not require a tax return

You do not have to file a gift tax return to report the following types of gifts:

• Transfers to political organizations
• Transfers to certain exempt organizations
• Payments that qualify for the educational exclusion
• Payments that qualify for the medical exclusion

Unified credit

Even if the gift tax applies to your gifts, it may be eliminated by the unified credit. Any unified credit you use against your gift tax in one year will reduce the amount of the credit you can apply against your gift tax liability in a later year. Let's look at an example: In 2016, you give your nephew Jack a cash gift of $8,000. You also pay the $20,000 college tuition of your friend, Fred. You give your 30-year-old daughter, Sally, $25,000. You also give your 27-year-old son, Kyle, $25,000. You apply the exceptions to the gift tax and the unified credit as follows:

• The qualified education tuition exclusion applies to the gift to Fred. Therefore, the gift to Fred is not a taxable gift.
• The 2016 annual exclusion applies to the first $14,000 of your gift to Jack, Sally and Kyle. Therefore, your $8,000 gift to Jack, the first $14,000 of your gift to Sally, and the first $14,000 of your gift to Kyle are not taxable gifts.
• Finally, apply the unified credit. The gift tax will apply to $22,000 of the above transfers ($11,000 remaining from your gift to Sally, plus $11,000 remaining from your gift to Kyle). The amount of the tax on the $22,000 is computed using IRS tables for computing the gift tax, which is located in the Instructions for Form 709. You would subtract the tax owed on these gifts from your unified credit of $2,125,800 for 2016.

Filing a gift tax return

For gifts made in 2016, the maximum gift tax rate is 40 percent. Most gifts you make are not subject to gift tax, but in the cases listed above, refer to the instructions on Form 709 for further guidance on gift tax reporting or call us at 417-881-0145 for assistance.