Gift Tax 2022 Form 709 Line 7

[carriskoul]

Hi - I believe I have a relatively straight forward situation here for first time gifting and filing Form 709.

-No direct skips or indirect skips so, no Schedule A Parts 2 & 3 as well as schedule D involved.

-No prior periods of gifting so, no Schedule B involved.

-No DSUE being claimed so, no Schedule C involved. 

Basic computation for taxable gift applies (i.e. cash was gifted from widowed mother to daughter of $250K.).  So, I followed the steps per Pub 709.

• Schedule A, Part 1 Column H = $250K & Part 4 ($250K - $16K) = $234K Line 11 applied to Line 1 Part 2 (page1)
• Tax computed on $234K Line 3 Part 2 per table in Pub. 709 = $38,800 for Line 4 then Line 6 Part 2 (pg. 1)

Here is the question, do I enter on line 7 Part 2 for applicable credit amount as follows:

• $12,060,000 basic exclusion - $234,000 gift = $11,826,000?

If not, based on the numbers above (because there are no other inputs) would appreciate some guidance on what to enter on line 7 Part 2 page 1.

Thank you.

[M-MTax · Accepted solution]

It's $12,060,000 on Line 7 for you and that's the basic exclusion amount....plus any DSUE amount and any restored exclusion amount and you don't have either of those. You're a first time gifter so you have no past gifts to worry about so it should be easy.

[MarilynG1]

Yes, you would qualify for the Basic Exclusion on your Gift, so no tax is due.

The IRS tracks gifts, and if you exceed the 12M amount, then your gifts become taxable.

Here's more detailed info on the Gift Tax. 

@carriskoul 

[carriskoul]

Thank you for confirming!

[carriskoul]

Thank you also for the quick response.

[carriskoul]

Hi again.  Just curious but when would you use $4,769,800 on line 7 Part 2 of form 709 (instead of $12,060,000 as noted previously)?

Not applying for the DSUE even though spouse passed away in 2019.

Asking because of the instructions noting as follows and just wanted to be double sure if I should enter one or the other value.

"If you are a citizen or resident of the
United States, you must apply any
available applicable credit against gift tax.
If you are not eligible to use a DSUE
amount from a predeceased spouse, or
Restored Exclusion Amount on taxable
gifts made to a same-sex spouse, enter
$4,769,800 on line 7. Nonresidents not
citizens of the United States may not claim
the applicable credit and should enter zero
on line 7."

[M-MTax]

The $12 mil figure is the exemption. The $4+ mil is the credit.

[carriskoul]

Sorry not sure I follow for when to use either.

Was just trying to understand if I use the exemption figure or the credit figure for line 7 in this case.

I wasn't sure if you looked back at my original post but in your initial response it was noted to use the exemption figure ($12,060,000) on line 7.

Only schedule A Part 1 and 4 are being used and no other schedules of this form.

The donor is widowed since 2019 but no DSUE will be considered.

Just a straight up gift in 2022.  If by chance anymore in the future, nowhere near any exclusion and/or credit limits.

The terms "exclusion" and "credit" are crossing me up for line 7's entry.

[carriskoul]

Also, just in case I was not clear in conveying our situation perhaps this should clear things up for Part 2 of form 709:

Part 1

Line 19:  NO

Part 2

Line 1:  234,000

Line 2:  

Line 3:  234,000

Line 4:    38,800

Line 5:   

Line 6:    38,800

Line 7:  Enter 12,060,000 exclusion? OR Enter 4,769,800 credit?  <-- the crucks of my confusion.

Line 8:

Line 9:  12,060,000? OR 4,769,800?

Line 10:

Line 11: 12,060,000? OR 4,769,800?

Line 12:   38,800

Line 13:

Line 14:   38,800

Line 15:    0

Line 16:

Line 17:    0

Line 18:

Line 19:    0

[M-MTax]

It's the applicable credit not the exclusion.

[dom1234]

I had a similar confusion. And explanations often lack clarity. 

Here is my take on it.

Line 7: Applicable credit amount

And 4,769,800 would be the tax to pay on a 12,060,000 donation if we did not have any credit. 

By entering 4,769,800 on line 7, we are saying, this is my tax credit. I will have to pay taxes only if my taxes are above.

Everyone mention the 12M donation amount, however the tax form requires you to enter the corresponding tax. 

I will never use all my credits, so it is a painful form to fill for nothing.

Good luck!

[sma3]

From the instructions

The applicable credit (formerly unified credit) amount is the tentative tax on the applicable exclusion amount. For gifts made in 2022, the applicable exclusion amount equals:
•
The basic exclusion amount of $12,060,000, PLUS
•
Any DSUE amount, PLUS
•
Any Restored Exclusion Amount.
If you are a citizen or resident of the United States, you must apply any available applicable credit against gift tax. If you are not eligible to use a DSUE amount from a predeceased spouse, or Restored Exclusion Amount on taxable gifts made to a same-sex spouse, enter $4,769,800 on line 7. Nonresidents not citizens of the United States may not claim the applicable credit and should enter zero on line 7."

Rather than have us add up all gifts up to $11 or $12 million, the IRS does it in reverse.  They want you to calculate the tax you should owe (Line 4) but then they  tell you there is currently a credit for taxes on amounts up to that $12 million.

The credit is $4,769,800.  You can figure this out if you look at what tax would be owed on $12,060,000 using Table on page 20. The answer is $4,769,800.

[schuler1]

So on the original question, the tax on $234,000 is wrong.

This amount falls between $150k and $250k. The tax on the first $150k is $38,800.

The tax on the  next $100k is 32% or $32,000. So the actual total tax is $70,800.

Also, line 7 part 2 is not $12,060,000. You actually have to enter the tax on that amount.

Using the same table: tax on the first $1 million is $345,800.

Tax on the next $11,060,000 is 40% or $4,424,000. So the actual total tax is $4,769,800. This is the magic number mentioned in the instructions for Line 7. This amount is actually a credit you do not have to pay.

Think of it as your max credit. The amount of $70,800 will reduce your credit for the next year.  If you consume all your credits you have to pay taxes. That also means you have given more than $12,060,000.

[carriskoul]

Thanks so based on the tax table wouldn’t my tax then be $38,800 + 32% on the remainder amount over $150,000?  
I.e. $234,000 - $150,000 = $84,000*.32 = $26,880

Total = $38,800 + $26,800 = $65,680

Now, do I resubmit form 709 and indicate “amended” for correcting the tax amount?

[schuler1]

Yes you are right on the $84k. 
Yes file again and write amended on the corrected form. You also need to send a copy of the original form with the error. 

Use this address for this mailing 

Internal Revenue Service Center

Attn: E&G, Stop 824G

7940 Kentucky Drive

Florence, KY 41042-2915