Basic Rules On Gifting

Perhaps your end-of-the-year plans include gifting a partridge in a pear tree and the rest of the presents listed in the carol The Twelve Days of Christmas. In 2022, this will run you $197,071.09, an increase of 9.8% from last year.

Or perhaps your end-of-the-year plans include other transfers to an individual. When that transfer is a true gift, for which the person does not pay full consideration, the gift tax may come into effect. Here is a reminder of some basic gift rules.

For individual income tax purposes, outright gifts (as distinguished from charitable contributions) are neither deductible by the donor nor taxable to the recipient. Further, for gift tax purposes, the donor does not actually pay gift taxes until accumulated lifetime taxable gifts exceed $12.92 million in 2023 ($12.06 million in 2022). As a general rule, gift tax returns are only required when completed gifts exceed the annual exclusion ($16,000 in 2022 and $17,000 in 2023; double if married) to any one individual during the calendar year. A gift is not completed until the donor loses all control over the property gifted.

The person giving the gift, not the recipient, is responsible for any applicable taxes. However, there are certain circumstances when the donee may pay the taxes. For example, if the donor does not pay applicable gift tax, the IRS may come after the recipient for the taxes owed.

Filing Form 709

Taxpayers making a gratuitous transfer of assets during the calendar year will need to file a gift tax return to report the transfer unless the gifts are:

• • Gifts of present interests valued at less than the annual exclusion for the calendar year
  • Tuition or medical expenses paid directly to a medical or educational institution
  • Gifts to a spouse
  • Gifts to a political organization
  • Gifts to charities

Any gift of a future interest requires the filing of Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. The gift of a future interest conveys property to a recipient, but defers their right to use, possess, enjoy, or receive income from it is until a future date.

If a return must be filed, the following should be kept in mind by the person preparing the return.

• • The Form 709 gift tax return is due on April 15 following the year of the gift unless extended until the mid-October due date.
  • If the donor of a gift dies during the year in which the gift is made, the gift tax return is due no later than the earlier of the due date (including extensions) of the donor’s estate tax return or April 15. The executor of the donor’s estate should file the gift tax return.
  • Gifts are valued at their FMV at the date of the transfer. The recipient’s tax basis is the lesser of the donor’s cost or FMV (plus any gift tax paid). The recipient also can include the donor’s holding period as their own holding period when determining capital gain or loss treatment.
  • Each spouse must file a separate gift tax return; there is no joint return. However, spouses may elect gift-splitting, which enables the gift given by one to be considered as if half of the amount were given by each spouse.
  • Any community property gifting is considered made 50-50 by each spouse.
  • Trusts, estates, partnerships, and corporations do not file Forms 709; however, the individual beneficiaries, partners, or stockholder are considered the donors and may be required to file.

Gifts to Charities

If the only gifts made during the year are charitable donations, the individual doesn’t need to file a return as long as their entire interest was transferred to the charity (i.e., if only a partial interest was transferred of the interest was transferred to someone other than a charity, Form 709 should be filed and all gifts should be reported.

GoFundMe Contributions

Donations to a GoFundMe account are not tax deductible. It is admirable and selfless to contribute to a family suffering a loss or to help with a neighbor’s medical bills. No matter how commendable the act is however, if the donation is not to a qualified charity, there is no associated tax deduction. Contributions of this manner are considered personal gifts.

Conclusion

From all of us at Tax School, we wish you a very happy gift-giving season and we look forward to serving you in the New Year!

By Kelly Golish,  CPA
University of Illinois Tax School
Assistant Director, Tax Materials

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Sources:

IRS Pub. 559

https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes

https://support.gofundme.com/hc/en-us/articles/360039267752-Tax-information-for-donors

Form 709 Instructions