Gift Tax Basics and Reporting

Giving money or property to family is common: helping a child buy a home, paying a grandchild's tuition, or moving a house into a relative's name. Most people never pay federal gift tax, but some gifts still need to be reported. Knowing the basic rules can save confusion later. This guide covers the federal gift tax in general terms. It does not list dollar amounts, because they change from year to year. The IRS publishes the current figures.

What the IRS treats as a gift

The IRS defines the gift tax as a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The IRS adds that the tax applies whether or not the donor intends the transfer to be a gift.

That definition is broader than many people expect. According to the IRS, you may be making a gift if you:

• Give money or property outright.
• Give someone the use of property, or the income from it.
• Sell something for less than its full value.
• Make an interest-free or reduced-interest loan.

Putting a house or other property into someone else's name for little or nothing can also be a gift. The IRS addresses this in its gifts and inheritances FAQ: when a parent transfers a home's title to a child, the child generally does not need to report it, but the parent may need to report it as a gift.

Gifts that are generally not taxable

The IRS's gift tax FAQ says the general rule is that any gift is a taxable gift, but there are many exceptions. Generally, these are not taxable gifts:

• Gifts that are not more than the annual exclusion for the year.
• Tuition or medical expenses you pay for someone.
• Gifts to your spouse.
• Gifts to a political organization for its use.

Gifts to qualifying charities are deductible from the value of the gifts made.

The annual exclusion applies separately to each person who receives a gift. The IRS updates the amount over time and lists it on its FAQ page. Check the figure for the year of your gift.

Each exception has conditions, which the Form 709 instructions explain. Read them or ask a professional before relying on one.

Who pays the gift tax

The IRS says the donor, meaning the person who gives the gift, is generally responsible for paying the gift tax. The person who receives it may agree to pay it instead under special arrangements, and the IRS suggests talking with a tax professional before setting that up.

Many people who file a gift tax return owe no tax that year. A large gift may simply use part of the giver's lifetime exemption, which is shared with the estate tax. That is why reporting matters even when no payment is due.

When you need to file Form 709

Gifts are reported on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. According to the IRS, the person making the gift must file Form 709 on or before April 15 of the year after the gift if, among other reasons:

• They gave at least one person, other than a spouse, more than the annual exclusion amount in gifts that do not qualify for the tuition, medical, political, or certain exempt organization exceptions; or
• They and their spouse want to split gifts made during the year.

Gift splitting

The IRS explains that a married person can treat a gift of their own property as made half by each spouse, but only if both spouses consent on a gift tax return for all gifts made that year. The Form 709 instructions explain when the consenting spouse must also file.

Filing options

The IRS says Form 709 can be filed electronically, and a return showing a balance due can be paid by electronic funds withdrawal.

What the person receiving the gift should know

The IRS states that making a gift does not ordinarily affect the recipient's federal income tax. Later, though, if the recipient sells the gift, basis matters. The IRS explains that the recipient's basis in gifted property is generally the same as the donor's basis. That means the recipient may owe income tax on gain built up while the donor owned it. The rules differ for property inherited from an estate.

Keep records of what the donor paid for the property and when.

Common mistakes

• Assuming no tax means no return. A return may be required even when no tax is due.
• Forgetting below-value sales and loans. The IRS treats these as possible gifts.
• Mixing up who files. The giver files Form 709, not the recipient.
• Missing gift-splitting consent. Both spouses must consent for gift splitting to apply.
• Losing basis records. The recipient will need them if they sell later.

When to talk to a lawyer or tax professional

The IRS says that for most simple, small transfers below the annual exclusion, you may not need a professional. For large or complicated transfers, it suggests speaking with several attorneys and CPAs or enrolled agents and asking about their experience.

A tax lawyer can help with large gifts, gifts of business interests or real estate, IRS questions about a past gift, or gifts that are part of a wider estate plan. An estate planning lawyer often handles the related wills, trusts, and transfer documents. Ask how they charge, and get the terms in writing.

Frequently asked questions

Does the person receiving a gift pay tax on it?

Generally no. The IRS says the donor is generally responsible for gift tax, and a gift does not ordinarily affect the recipient's federal income tax.

When is Form 709 due?

The IRS says it is due on or before April 15 of the year after the gift, when a return is required. Extensions are available through a separate form.

Is paying a relative's medical bill a gift?

Paying someone's medical expenses can fall under an exclusion. Conditions apply, so check the Form 709 instructions or ask a professional.

Do gifts to my spouse need to be reported?

The IRS lists gifts to your spouse among gifts that are generally not taxable. The Form 709 instructions explain the details and any exceptions, so check them or ask a professional if your situation is unusual.

Related: Browse more legal guides and tax lawyers.

General information, not legal advice. Laws change and every case is different — talk to a licensed attorney about your situation.