How to File the Lifetime Gift Tax Exemption

The federal government provides a lifetime gift tax exemption, a provision allowing individuals to transfer a significant amount of assets to others without incurring a gift tax. This exemption is a cumulative total that can be used throughout a person’s life. While gifts that fall under this exemption mean you will not owe tax, they often require filing a return with the Internal Revenue Service (IRS). This filing serves as a formal record, tracking the portion of your lifetime exemption you have used over time.

When a Gift Tax Return Is Required

A gift tax return is not required for every gift you make. Federal tax law includes an annual gift tax exclusion, which for 2025 is $19,000 per recipient. You can give up to this amount to as many individuals as you want each year without any tax consequences or filing requirements. The lifetime exemption, a much larger amount of $13.99 million per individual for 2025, only comes into play for gifts that exceed this annual threshold.

The primary trigger for filing a gift tax return is giving more than the annual exclusion amount to any single person within a calendar year. For example, if you give a relative $50,000 in 2025, you have exceeded the $19,000 annual exclusion for that person. You must file a return to report the $31,000 difference, which is then subtracted from your lifetime exemption total. No tax is due at this point; the filing simply documents the use of your exemption.

Another situation requiring a return is “gift splitting.” This strategy is used by married couples to combine their annual exclusions for a single recipient, allowing them to give up to $38,000 in 2025. Even if the total gift is below this combined limit, both spouses must file their own separate gift tax returns. This filing signifies to the IRS that they have both consented to split the gift.

Certain types of gifts necessitate a filing regardless of their monetary value. Gifts of “future interest” are a prime example. These are gifts that a recipient cannot access or enjoy immediately, such as assets placed into specific kinds of trusts. Because the annual exclusion does not apply, a gift tax return must be filed.

Conversely, several types of transfers are not considered taxable gifts and do not require a return. Payments made directly to a medical facility for healthcare expenses or to an educational institution for tuition costs are not taxable gifts. Donations to qualifying political organizations or charities are also exempt. While most gifts to a U.S. citizen spouse are exempt, a return is required if the gift is a “terminable interest”—an interest in property that ends after a certain time or event.

Preparing Your Gift Tax Return

To report taxable gifts, you must use IRS Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. Before filling out the form, you will need to gather specific information. A detailed description of each gift is required; for cash this is simple, but other assets need more detail.

You will need to provide the following:

• Your name, address, and taxpayer identification number.
• The recipient’s (donee’s) full name, address, and relationship to you.
• The date each gift was made.
• Your adjusted cost basis in the property, which is what you paid for it plus any improvements, minus depreciation.
• The Fair Market Value (FMV) on the date of the gift.

FMV is the price an asset would sell for on the open market. For publicly traded stocks, the FMV is the average of the high and low selling prices on the date of the gift. For assets like real estate or a privately held business interest, determining FMV is more complex and often requires a formal appraisal from a qualified professional.

On Schedule A of the form, you will list each gift and its details. After subtracting any applicable annual exclusions, you arrive at the total taxable gifts. This final number is then carried to the first page of the form to calculate how much of your lifetime exemption has been used.

How to Submit Form 709

The filing deadline for the gift tax return is April 15 of the year following the year the gifts were made, which aligns with the federal income tax deadline. If you file for an extension for your personal income tax return (Form 1040), that extension automatically applies to your Form 709, moving the deadline to October 15.

The form must be mailed to the IRS. The specific mailing address depends on your location and whether you are including a payment. Since most filers using their lifetime exemption will not owe any tax, they will use the address for returns without a payment, which is listed in the Form 709 instructions on the IRS website.

You should not expect to receive a confirmation from the IRS after mailing the return. The agency simply processes the form and updates its records. For this reason, you must maintain your own records by keeping a complete copy of the filed Form 709 indefinitely. This copy, along with supporting documents like property appraisals or brokerage statements, will be needed for future filings and the administration of your estate.

Impact on Your Future Estate Tax

Filing a gift tax return has direct consequences for your future estate plan. The gift tax and the federal estate tax are linked through a unified credit. This means the exemption amount is a single, combined total that can be used to offset taxes on gifts made during life or on assets transferred to heirs after death. The lifetime exemption is not a separate pool of money for gifts and another for your estate; it is one unified amount.

Using part of the exemption now means there is less of it available later. For example, with a 2025 lifetime exemption of $13.99 million, if you make a taxable gift of $1.019 million, you first apply the $19,000 annual exclusion. The remaining $1 million is a taxable gift that reduces your lifetime exemption. Your remaining unified credit for future gifts or your estate would then be $12.99 million.

This demonstrates that filing a gift tax return is an act of estate planning with permanent effects. Each Form 709 you file reduces the amount of wealth you can transfer tax-free upon your death, so diligently tracking this usage is a component of managing your financial legacy.