Navigating Gift Tax Returns | The Critical Role of Professional Valuations
Published on by Harold Kremer in Consulting, Tax Services
What’s a gift tax return?
A gift tax return, also known as IRS Form 709, is used to report gifts that exceed the annual exclusion limit, which is $18,000 in 2024 and $36,000 for couples married filing jointly. This form is typically due on April 15th of the year following the calendar year in which the gift was made, but can be extended pending approval by the IRS.
If your extension is accepted, you have until October 15th of the year following the year in which the gift was made to file Form 709. You can receive this extension by either requesting an extension for your federal income tax return (Form 1040) or, if you’re not requesting an income tax extension, by filing Form 8892 to request a six-month extension for Form 709.
When are you required to file a gift tax return?
There are many situations where filing a gift tax return is required. Generally, you are required to file a gift tax return for the following situations in 2024:
- Gifts are made to any individuals who exceed the annual exclusion limit of $18,000 in 2024 (gifts below this limit do not require a gift tax return to be filed)
- Gifts of ownership interests in privately held companies that exceed the annual limit of $18,000
- Gifts to non-U.S. citizen spouses exceeding $185,000
- Gifts of future interest (transfer to a trust for future access), even if it’s below the annual exclusion
Examples of transfers subject to the gift tax
- Any transfer by gift of real or personal property, tangible or intangible, that was made directly or indirectly, in trust, or by any other means
- Any exchange made in the ordinary course of business where the value of the gift (money or property) received is less than the value of what is sold or exchanged
- Forgiveness of debt
- Making an interest-free or below-market interest-rate loan
- Transferring the benefits of an insurance policy
- Certain property settlements in divorce cases
- Giving up some amount of annuity in exchange for the creation of a survivor annuity
- Bonds that are exempt from federal income taxes are not exempt from federal gift taxes
- The transfer of digital assets
When must an appraisal or valuation report be included with a gift tax return?
The IRS states that in order to begin running the statute of limitations for a gift, the gift must be adequately disclosed on Form 709. A gift will be considered adequately disclosed if the return includes a variety of items listed by the IRS. Included in this list is a qualified appraisal describing the method used to determine the fair market value of the gift.
When gifting property other than cash or publicly traded stock that exceeds the annual exclusion limit, a qualified appraisal is necessary to determine the fair market value as of the gift date. Common assets that often require appraisals are real estate, privately held business interests, valuable personal property, digital assets, and intellectual property.
Can you do your own appraisal, or do you have to hire a professional?
While an appraisal from a professional is not required for qualifying gift tax return items, it’s highly suggested. If you elect to perform your own, you will need to include a detailed description of the method used to determine the fair market value of the gift. The IRS can challenge gift tax appraisals if it believes the valuations are not accurate or compliant with its guidelines.
Utilizing a valuation professional can ensure that the valuation meets the extensive IRS standards and provides an accurate estimate of the fair market value of the property. It also adds credibility to the valuation, reducing the risk of disputes or penalties involved in gift tax reporting.
What are my next steps?
Are you in need of a valuation to assist in the gift tax return process? Set up a free consultation with one of our certified business valuation pros. They can help you determine how to go about accurately and efficiently filing a gift tax return paired with a valuation report.
