Reminder: Gift Tax Returns Due April 15, 2023

Related Practice: Estate Planning & Administration

Broadly speaking, the federal gift tax applies to property transferred during life without receiving full and adequate consideration in return. For example, a cash gift of $50,000 to an adult child is considered a taxable gift for federal gift tax purposes, but a sale of property for $50,000 (assuming that is the fair market value) is not. It makes no difference whether the transfer is outright or in trust, or what type of property is transferred.

The federal gift tax exemption is the maximum amount that a person can give away during lifetime without incurring federal gift tax. In 2023, the federal gift tax exemption amount is $12,920,000 per individual, and is adjusted for inflation annually. Absent action by congress, beginning January 1, 2026, this exemption amount is scheduled to be reduced by half. Estimates vary, but it is expected to be around $6,800,000 per individual. Taxable gifts that collectively exceed the transferor’s federal gift tax exemption are subject to gift tax at a flat 40% rate. If gift tax is due, the person giving the gift (the donor) is primarily responsible for paying the tax.

When do you need to file a gift tax return?

In 2022, you could give up to $16,000 to as many people as you like without paying any federal gift tax, without using any of your federal gift tax exemption, and without the need to file a federal gift tax return. In 2023 that amount is $17,000 per donee. This exclusion amount is commonly referred to as the “gift tax annual exclusion.” Any gifts that exceed the gift tax annual exclusion and do not fall within limited exceptions must be reported on a federal gift tax return, Form 709.

Are there exceptions?

Certain “qualified transfers” are excluded from federal gift tax. A “qualified transfer” generally means a transfer made directly to an educational institution for tuition of another or to a medical care provider for medical expenses for another. Qualified transfers won’t reduce your remaining gift or estate tax exemptions, and you won’t have to file a gift tax return, but only if the payments are made directly to the service provider, such as the school or hospital.

What is the due date for filing a federal gift tax return?

You must normally file Form 709 no later than April 15 of the year after the gift was made unless that date falls on a Saturday, Sunday, or legal holiday (as is the case in 2023), in which case the Form 709 is due on the next business day. Therefore, Form 709 for taxable gifts made in 2022 are due April 17, 2023. However, you can request an automatic six-month extension if you need more time to file your return, and any extension of time granted for filing your federal individual income tax return will automatically extend the time to file your federal gift tax return. Regardless of whether an extension is granted, if you owe federal gift tax, you must pay it by April 15 in order to avoid interest and penalties for late payment.

Are there special rules for married couples?

If your spouse is a U.S. citizen, you can gift an unlimited amount to your spouse without paying any federal gift tax and typically without having to file a federal gift tax return.

Another special rule is that married taxpayers who are U.S. citizens or residents can make an election to “split gifts.” This allows one spouse to make a gift to a third party, but have the gift treated as made one-half by each spouse.

If you made gifts in excess of $16,000 to any individual during 2022, you may be obligated to file a federal gift tax return. Working with a qualified professional such as a CPA or attorney can help avoid costly mistakes and ensure your gift tax return accurately reports your gifts.

To learn more, please contact a member of the Stokes Lawrence Estate Planning Group at (206) 626-6000 in Seattle or (509) 853-3000 in Yakima.