A Brief Overview of Current Gift Tax Reporting Rules

As Seen in Triangle Business Journal

Intervivos (or lifetime) gifting strategies permit individuals to divest wealth during their lifetime for the benefit of family, friends, and charities. It is essential to have the appropriate professionals engaged to comply with the complex federal gift tax reporting rules which are imposed upon transfers made by individuals (but not businesses, trusts or organizations) to third parties in order for the transactions to meet requirements under federal law.

Historically, a primary benefit of making gifts during lifetime was to leverage the value of an asset before it appreciates and in turn reduced the value of assets held by an estate at a person’s date of death that would be subject to federal estate tax. Certain state jurisdictions also impose an estate tax on a decedent’s assets, but not the State of North Carolina. Following the enactment of the OBBB law in 2025, many persons without potential estate tax concerns but having accumulated wealth are motivated to make intervivos gifts in order to see the recipients enjoy the gifts during their lifetime.

Various professionals may need to be engaged in order to properly comply with gift tax reporting requirements. A qualified tax professional should be contacted to assist with the filing of any required Gift Tax forms. In addition, qualified legal counsel should also be retained when gifting involves the use of trusts, gift restrictions, transfers of interests in a business or real estate, or transfers to / from a foreign party. Finally, as it is essential to properly determine the fair value of a gift, a certified appraiser will be needed whenever gifts of property (such as real estate, art, or collectables) are executed.

Unless an exemption or exclusion applies, transfers are considered “reportable” gifts that require the filing of Form 709, Federal Gift Tax Return. Form 709 is due April 15 following the year of the gift but subject to an additional 6-month filing extension with submission to the Internal Revenue Service (“IRS”) of either Forms 4868 or 8892 prior to the initial filing due date. Payment will be due with the extension only if is anticipated that a federal gift tax (currently applied at a 40% rate) will actually be owed. Under current law only the State of Connecticut still maintains a state gift tax which applies to transfers by residents or of in-state property.  

The various gift tax exclusions and exemptions that could apply to any transfers include the following:

• Sales: A transfer of any property in exchange for consideration equal to its fair market value is not considered a gift.
• Annual Exclusion: An individual may annually make a tax-free transfer to any person, company, or organization of cash or property with a value not exceeding $19,000 (per current law), and married couples can combine their exclusion to make joint gifts not exceeding $38,000. In addition, no Form 709 reporting is typically needed when the only gifts made during the year qualify under the annual exclusion. In general, the annual exclusion covers gifting to assist with acquiring a first car, wedding or birthday gifts, home purchase down payments, etc.
• Lifetime Exemption: Under current law, each individual has a $15 million dollar lifetime amount for gift exceptions. A Form 709 is required whenever the lifetime exemption is applied to offset the value of the intervivos gift. While this is a valuable tool to secure tax-free treatment when making intervivos gifts, any amount used during a person’s lifetime will reduce the remaining exemption amount (if any) that would otherwise be available at an individual’s death to offset applicable federal estate tax.
• Direct Remittance of Specified Payments: An individual may pay “qualified” medical costs or “qualified” education expenses for benefit of another individual without the imposition of a gift tax so long as payment is made directly to the medical provider or educational institution.  
• Marital Transfers: Spouses may generally make an unlimited amount of transfers between themselves, and a Form 709 is not needed unless other reportable gifts are made during the year. However, when trusts, foreign gifts, or non-U.S. citizen spouses are involved, Form 709 or Form 3520 reporting may be needed.
• Charitable Contributions: Typically, gifts made to qualified charities are not subject to gift tax. However, when a Form 709 is required because of other reportable gifts made during the year, charitable contributions must be disclosed on the annual gift tax return. Note that charitable gifts made via a trust or funded with property interests will generally have income tax reporting requirements to fulfill.

Navigate Lifetime Gifting With Confidence

Federal gift tax reporting rules remain complex, and each individual's situation varies. Connect with Anthony Pandiscia to discuss intervivos gift planning strategies and related reporting considerations.