Who Must File a Gift Tax Return
If you are a citizen or resident of the United States, you must file a gift tax return (whether or not tax is due) if you gave gifts to someone in 2020 totaling more than $15,000 (other than to your spouse). Certain gifts, called future interests, are not subject to the $15,000 annual exclusion and you must file a gift tax return even if the gift was less than $15,000.
You must file a gift tax return if you elect to split gifts with your spouse.
If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax return. Likewise, each spouse must file a gift tax return if they have made a gift of property held by them as joint tenants or tenants by the entirety.
Only individuals are required to file gift tax returns. If a trust, estate, partnership, or corporation makes a gift, the individual beneficiaries, partners, or stockholders are considered donors and may be liable for the gift tax.
The donor is responsible for paying the gift tax. However, if the donor does not pay the tax, the person receiving the gift may have to pay the tax. If a donor dies before filing a gift tax return, the donor's executor must file the return.
If the only gifts you made during the year are deductible as gifts to charities, you do not need to file a gift tax return as long as you transferred your entire interest in the property to qualifying charities. If you transferred only a partial interest, or transferred part of your interest to someone other than a charity, you must still file a return and report all of your gifts to charities. If you are required to file a return to report non-charitable gifts and you made gifts to charities, you must include all of your gifts to charities on the return.
What Types of Transfers are Subject to the Gift Tax
The federal gift tax applies to any transfer by gift of real or personal property, whether tangible or intangible, that you made directly or indirectly, in trust, or by any other means.
The gift tax applies not only to the free transfer of any kind of property, but also to sales or exchanges, not made in the ordinary course of business, where value of the money (or property) received is less than the value of what is sold or exchanged. The gift tax is in addition to any other tax, such as federal income tax, paid or due on the transfer.
Bonds that are exempt from federal income taxes are not exempt from federal gift taxes.
Transfers not subject to the gift tax include:
Transfers to political organizations,
Transfers to certain exempt organizations,
Payments that qualify for the educational exclusion, and
Payments that qualify for the medical exclusion.
Political organizations. The gift tax does not apply to a transfer to a political organization (defined in section 527(e)(1)) for the use of the organization.
Certain exempt organizations. The gift tax does not apply to a transfer to any civic league or other organization described in section 501(c)(4); any labor, agricultural, or horticultural organization described in section 501(c)(5); or any business league or other organization described in section 501(c)(6) for the use of such organization, provided that such organization is exempt from tax under section 501(a).
Educational exclusion. The gift tax does not apply to an amount you paid on behalf of an individual to a qualifying domestic or foreign educational organization as tuition for the education or training of the individual. The payment must be made directly to the qualifying educational organization and it must be for tuition. No educational exclusion is allowed for amounts paid for books, supplies, room and board, or other similar expenses that are not direct tuition costs. To the extent that the payment to the educational organization was for something other than tuition, it is a gift to the individual for whose benefit it was made, and may be otherwise offset by the gift tax annual exclusion.
Medical exclusion. The gift tax does not apply to an amount you paid on behalf of an individual to a person or institution that provided medical care for the individual. The payment must be to the care provider. The medical care must meet the requirements of section 213(d) which defines medical care for income tax deduction purposes. The medical exclusion does not apply to amounts paid for medical care that are reimbursed by the donee's insurance. If payment for a medical expense is reimbursed by the donee's insurance company, your payment for that expense, to the extent of the reimbursed amount, is not eligible for the medical exclusion and you are considered to have made a gift to the donee of the reimbursed amount. To the extent that the payment was for something other than medical care, it is a gift to the individual on whose behalf the payment was made and may be otherwise offset by the gift tax annual exclusion.
Attorney Adler focuses his practice on estate planning, wills, trusts and estates. He can be reached at 212-843-4059 or 646-946-8327.