The Hidden Benefits of Filing a Gift Tax Return
- Viktoriya Barsukova, EA, MBA
- Dec 25, 2025
- 13 min read
Most people never have to pay gift taxes, but they still may be required to file gift tax returns with the IRS. Such filings can be a burden, but they can also provide important benefits.
What Is a Gift Tax Return?
IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, must be filed by the person who makes a taxable gift (the donor), not the gift recipient (the donee).1
Donors who file gift tax returns rarely have to pay any gift tax. Rather, Form 709 is the reporting mechanism for the IRS to track how much a taxpayer has given during their lifetime and how much of their lifetime estate and gift tax exemption remains.
Once a taxpayer uses up their lifetime exemption, any additional gifts are subject to the gift tax. For 2025, the lifetime exemption amount is $13.99 million per individual and $27.98 million per married couple.2
When You Need to File a Gift Tax Return
Not all gifts have to be reported on Form 709. You are required to file a gift tax return only if you make a taxable gift during the year,3 and if any of the following applies.4
You Exceed the Annual Gift Tax Exclusion
You must file a gift tax return if you give any individual during the year more than the annual gift tax exclusion. For 2025, this is $19,000. For example, you can give five people $19,000 each and not file a gift tax return. But if you give one person $20,000, you’ll have to file a return.
You Make Gifts after Using Up Your Lifetime Exemption
There is a lifetime gift and estate tax exemption—for 2025, the lifetime exemption is $13.99 million per individual and $27.98 million per married couple. If you give additional gifts after using up your lifetime exemption, you must file a gift tax return and pay gift taxes.
You and Your Spouse Engage in Gift Splitting
Gift splitting allows spouses to treat gifts made to individuals by either of them as having been made one-half by each of them. This allows them to combine their annual exclusion ($19,000 in 2025), enabling a spouse to make a gift of up to $38,000 to a single person without making a taxable gift that uses up part of their lifetime estate and gift tax exemption.
If the election to split gifts is made, all gifts made by the spouses during the calendar year must be split.
The spouse who makes the gift must file a gift tax return reporting all the gifts subject to splitting. The non-filing spouse must consent to gift splitting. If both spouses make gifts exceeding the annual exclusion, they will each have to file a gift tax return including the consent of the other spouse.
Example. John gives $30,000 to his daughter Mary in 2025. His wife, June, gives Mary nothing. If John and June elect gift splitting, each is treated as giving $15,000 to Mary. Even though $15,000 is less than the $19,000 annual exclusion, John must file a gift tax return and June must sign a notice of consent to the gift splitting.
Key point. They could avoid filing a gift tax return if they each wrote a check giving Mary $15,000.
In community property states, gifts of community property are automatically considered to be made 50 percent by each spouse; no consent to split gifts is required. But if the total value of the gift to any one person in a year exceeds the annual gift tax exclusion amount for both spouses ($38,000 in 2025), each spouse must file a separate gift tax return reporting their 50 percent portion of the community property gift.
The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Example. A married couple in California gives $100,000 of community property to their child. This is considered a gift of $50,000 from each spouse. Since the annual exclusion for 2025 is $19,000, each spouse has made a gift exceeding the exclusion by $31,000. Therefore, each must file a gift tax return reporting their share of the gift.
For gifts of separate property in community property states exceeding the exclusion, a consent to split gifts is required.
You Give a Future Interest
You must file a gift tax return if you give a gift of a future interest in property, regardless of the amount of the gift.
A gift of a future interest is a gift that the recipient can only use in the future, not when the gift is made. Gifts of future interests are not eligible for the annual exclusion and reduce your lifetime exemption regardless of the amount.
There is an exception for gifts to minors if the property is accessible to the minor by age 21.
In general, transfers to a trust are considered gifts of a future interest that must be reported on a gift tax return. However, there are ways around this rule. The most common is to use a Crummey trust, in which the trust beneficiaries are given a temporary right (typically for 30 to 60 days) to withdraw the amount contributed to the trust.
If they don’t withdraw the gift during that time, the period lapses and the gift becomes owned by the trust. Because the beneficiaries had a present right to withdraw the gift, it qualifies as a gift of a present interest. If less than $19,000, the gift qualifies for the annual exclusion.
You Front-Load Gifts to a Section 529 Plan
If you’ve established a Section 529 college savings plan to help fund a child’s or other family member’s college education, you can contribute up to the annual gift exclusion amount to the plan ($19,000 in 2025) without having to file a gift tax return.
You have the option of contributing five years’ worth of annual exclusion gifts in a single year without reducing your lifetime estate and gift tax exemption. If you do so, you must file Form 709 and make an election to treat the gift as having been made ratably over five years. You can’t give any more gifts to that beneficiary for the next five years without exceeding the annual exclusion amount.
You Make a Reportable Marital Gift
Gifts between spouses ordinarily are not reported on a gift tax return because there is an unlimited gift tax exclusion for transfers between spouses who are U.S. citizens.5 But there are important exceptions. A gift tax return must be filed in the following circumstances:
• One spouse gifts the other an interest in property that will end at some future date. This includes a gift to a qualified terminable interest property (QTIP) trust made during the donor spouse’s lifetime; the donor spouse must make a QTIP election on Form 709.6
• One spouse is not a U.S. citizen, and the other gifts them more than the annual limit—$190,000 in 2025.7
• Spouses make a gift of property held by them as joint tenants or tenants by the entirety (both must file a gift tax return).
What You Must Disclose on a Gift Tax Return
Completing a gift tax return basically requires you to report all your taxable gifts for the year on the appropriate schedule, list the total amount of taxable gifts made for each year in the past, and then calculate how much of your lifetime estate and gift tax exemption remains.
If the lifetime exemption has been exhausted, gift tax must be calculated and paid with the return (this is rare).
If spouses engage in gift splitting, Part III of Form 709 must be completed for the non-donor spouse to consent to the gift(s). The non-donor spouse must also sign a separate Notice of consent that must be attached to the return.
Things can get more complicated if you make gifts subject to the generation-skipping transfer tax (GST tax). This is a separate tax that applies to gifts that skip a generation (typically from grandparents directly to grandchildren or beyond, bypassing the children) or that are made to anyone more than 37.5 years younger than the donor.
The GST tax is the same amount as the regular gift tax and is paid in addition to that tax. Each individual has a lifetime GST exemption equal to the estate and gift tax lifetime exemption. The annual gift tax exclusion ($19,000 in 2025) also applies to GST taxes. Gifts subject to the GST tax are tracked separately on Form 709, and the form is used to allocate the lifetime GST exemption.
For each reportable gift, you must include the following:8
• The donee’s (gift recipient’s) name, address, and relationship to the donor, if any
• A detailed description of the gift
• The donor’s adjusted basis in the gift (generally, cost plus improvements less depreciation, amortization, and depletion)
• The date of the gift
• The gift’s fair market value (FMV)
• Whether gift splitting is elected
If property is transferred in trust, you must include the trust’s employer identification number (EIN) and a brief description of the terms of the trust (or a copy of the trust instrument instead of the description).
Charitable donations (gifts). You must disclose not only all your taxable gifts to individuals, but all the charitable gifts you made during the year as well, even if they are less than the annual exclusion amount. This is so even though gifts to charity are not subject to the gift tax or any other tax.9
Charitable gifts do not reduce the lifetime estate and gift tax exemption. (If you don’t make a taxable gift requiring you to file a gift tax return, you don’t have to report any charitable gifts to the IRS on Form 709.)
Valuing Gifts on a Gift Tax Return
For gift tax purposes, the value of the gift is generally the FMV of the property on the date of the gift.10
For gifts of cash, publicly traded securities, or cryptocurrency, FMV is straightforward. But valuation is much more subjective, and much more difficult, for interests in small businesses, real estate, art, collectibles, or intangible assets. Obviously, you want the value of such assets to be as low as possible so you use up as little of your lifetime estate and gift tax exemption as possible.
Remember this. Your valuations on your gift tax return are subject to audit by the IRS.
The single greatest benefit of filing a gift tax return is that it starts the clock ticking on the IRS’s ability to challenge your valuations: the IRS has three years to challenge the value of a gift reported on Form 709.
After the statute of limitations runs, your valuations are locked in forever. But the three-year limitations period starts to run only if an adequate disclosure of the gifted property is made on a gift tax return. If an adequate disclosure is not made, there is no statute of limitations on such IRS challenges.11
An adequate disclosure requires either (1) an appraisal of the property by a qualified appraiser, or (2) a detailed description of the method used to determine the FMV of the gift.12
For example, to value the stock of close corporations, you must attach balance sheets and statements of net earnings or operating results and dividends paid for each of the five preceding years.13
Certain gifts may be entitled to a valuation discount for gift tax purposes. These discounts—which can range from 10 to 50 percent—reduce the taxable value of the gift and thus reduce usage of the lifetime exemption. Discounts are most common when gifting interests in closely held businesses, family partnerships, or LLCs.
Such gifts may qualify for a discount based on a lack of marketability or if they are a minority or fractional interest in real estate. You must attach an explanation giving the basis for any discounts claimed and showing the amount of the discounts taken.14
When and How to File a Gift Tax Return
You must file a gift tax return (Form 709) on paper separately from your income tax return and send it to a different IRS processing center.
Spouses cannot file a joint gift tax return.
Each individual is responsible for filing their own Form 709 if required. Since you must file a paper return, it’s a good idea to use a private delivery service or certified mail to deliver it, not regular U.S. mail.
A gift tax return is due at the same time as your income tax return.
You’ll get an automatic six-month extension to file it if you extend the time to file your income tax return.
You can also get a six-month extension of time to file Form 709 alone by filing Form 8892, Application for Automatic Extension of Time To File Form 709 or Form 709-NA and/or Payment of Gift/Generation-Skipping Transfer Tax.15
What Happens if You Fail to File a Gift Tax Return?
Usually, nothing.
There is a failure-to-file penalty of 5 percent per month for failure to file any return, including a gift tax return. But the penalty applies only if tax is due and owing.16
Thus, no failure-to-file penalty is due unless the total gifts a taxpayer makes exceed the lifetime exemption amount and gift tax is owed.
The lifetime exemption is $13.99 million per individual for 2025; for a widow or widower it can be as high as $27.98 million (any unused portion of the $13.99 million exemption from the deceased spouse is transferred to the surviving spouse).
Because of the large lifetime exemption, taxpayers usually don’t owe any gift tax, and usually no penalty is due if they fail to file a gift tax return.
But if you fail to file, you’ll lose the benefits of a gift tax return. Most significantly, the statute of limitations will not begin to run on the IRS’s right to challenge valuations of hard-to-value gifts like family business interests.
Filing Form 709 also establishes a clear record of your gift-giving and helps you keep track of your lifetime gift tax exemption. Not filing can make it harder for your executor to determine the correct value of your estate.
Takeaways
Gift tax returns are filed by the makers of gifts (donors), not the gift recipients (donees). They must be filed whenever a taxpayer makes a reportable gift, even if no gift tax is due.
Gift tax returns must be filed if
• a taxpayer gifts any single individual more than the annual exclusion amount ($19,000 in 2025),
• gifts exceed the lifetime gift and estate tax exemption,
• spouses engage in gift splitting by combining their annual exclusions,
• a donor makes a gift of a future interest,
• a taxpayer front-loads five years of contributions to a Section 529 plan, or
• a donor makes certain gifts to their spouse.
If a gift tax return is filed, all gifts made to charity must be disclosed, even though such charitable gifts are not subject to the gift tax and do not reduce the annual gift tax exclusion or lifetime exemption.
A donor must disclose on a gift tax return detailed information about each reportable gift, including its fair market value. Hard-to-value gifts, such as family business interests, require either an appraisal or a detailed description of the method used to determine the FMV of the gift. If a gift is adequately disclosed, the IRS has three years to challenge its valuation.
Gift tax returns are due at the same time as the income tax return; however, they must be filed on paper separately from the income tax return. Spouses must each file their own gift tax return—there is no such thing as a joint gift tax return.
ANNUAL AND LIFETIME GIFT TAX EXCLUSIONS
Source: Spidell Publishing, Inc.
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Several categories of gifts are not subject to either the annual exclusion or the lifetime exemption. These exceptions allow taxpayers to transfer significant value without reducing their available exclusions.
UNLIMITED TUITION PAYMENTS
Taxpayers may pay an unlimited amount of tuition on behalf of another individual without triggering gift tax reporting or reducing their annual or lifetime exclusions. Both full-time and part-time students qualify, but the tuition must be paid directly to a qualified educational institution.
If the taxpayer gives money to the student, who then pays the tuition, the payment is treated as a regular gift subject to the annual exclusion and lifetime exemption.
Only tuition qualifies for this exclusion. Payments for room and board, books, supplies, transportation, or other expenses are treated as regular gifts.
These direct tuition payments can be combined with annual exclusion gifts. For example, a taxpayer can pay a grandchild’s tuition directly to the school and still gift an additional $19,000 in 2025 or 2026.
UNLIMITED MEDICAL EXPENSE PAYMENTS
Medical expenses paid directly to a medical service provider on behalf of another individual are also exempt from the annual and lifetime gift limits. There is no dollar cap, but the payment must be for qualified medical expenses.
Nonqualified expenses, such as cosmetic procedures, wellness programs, or elective treatments, do not qualify and are treated as regular gifts.
Qualified medical expenses generally include hospital care, surgeries, dental treatment, long-term care services, and medical insurance premiums.
GIFTS TO A SPOUSE
Gifts between spouses are excluded from gift tax only if three requirements are met: the donor and donee are married at the time of the gift, the donee spouse is a U.S. citizen, and the property interest transferred is not a terminable interest.
If the donee spouse is not a U.S. citizen, gifts are subject to a separate annual exclusion amount of $190,000 for 2025 and $194,000 for 2026.
CHARITABLE GIFTS
Gifts to IRS-recognized charitable organizations, such as qualified 501(c)(3) organizations, are not subject to gift tax. These gifts do not reduce either the annual gift tax exclusion or the lifetime exemption.
Gifts to other types of organizations, such as 501(c)(4) or 501(c)(6) organizations, are treated as regular gifts. Contributions made directly to personal fundraisers, including platforms like GoFundMe, are also treated as regular gifts.
DONOR-ADVISED FUNDS
Contributions to donor-advised funds are not limited and allow taxpayers to claim a charitable contribution deduction in the year the contribution is made, even though distributions to charities can occur over multiple years.
Taxpayers may also contribute appreciated assets to a donor-advised fund and claim a deduction for the full fair market value of the donated property without recognizing taxable income on the appreciation.
529 ACCOUNTS AND GIFTING STRATEGY
Contributions to Section 529 plans are treated as gifts to the beneficiary, but the earnings in the account are not taxable if used for qualified education expenses.
529 plans are most effective when contributions have time to grow tax-deferred. As beneficiaries approach the age when education costs will be incurred, it may be more advantageous to pay tuition directly to the institution and preserve annual gift exclusions for future planning.
IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return (2024).
Rev. Proc. 2024-40, Section 2.41.
IRC Section 6019.
IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, Instructions (2024), p. 2.
IRC Section 2523(a).
IRC Section 2523(f).
IRC Section 2523(i); Rev. Proc. 2024-40.
IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, Instructions (2024), pp. 11–12.
IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, Instructions (2024), p. 2.
IRC Section 2512(a); Reg. Section 25.2512-1.
Reg. Section 301.6501(c)-1(f)(1).
Reg. Section 301.6501(c)-1(f)(2)(iv).
IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, Instructions (2024), p. 12.
Reg. Section 301.6501(c)-1(f)(2)(iv).
IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, Instructions (2024), p. 5; IRS Form 8892, Application for Automatic Extension of Time To File Form 709 or Form 709-NA and/or Payment of Gift/Generation-Skipping Transfer Tax (Rev. December 2024).
IRC Section 6651(a).
The Hidden Benefits of Filing a Gift Tax Return - Bradford Tax Institute
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