The wife and I gave a large enough gift in 2019 to require Form 709. We are in CA, a community property state.
Form 709 instructions say we must each file a form for half the total gift because it was community property. That part I understand.
What I don't understand is the term "gift splitting" and the split gift part of 709. I am guessing that "gift splitting" does not apply and I should leave it blank because we're each filing for half the total gift. Right?
Complete lines 12-18 if the gift was from community property.
I wasn't asking which lines to complete. There are lines 12-18 in Part 1 and Part 2. I understand both of those Parts. I believe you meant Part 1.
The question is about Form 709 Schedule A Part 1, "Gifts Subject Only to Gift Tax", which has no line numbers.
The instructions are weird. Page 1, "Who must file" says community property requires 2 separate forms.
Page 6, "Split Gifts" also says 2 separate forms are required when gift splitting with a few inapplicable (to us) exceptions. Schedule A of the form talks about dividing the gift in half. But we already divided the gift in half, half on each of 2 709s.
It's as if the IRS is being purposely confusing. First time that ever happened!
Let’s take an example of a gift of $100,000 from community property. Sch A has you divide the gift in half. That $50,000 flows to Part 4 line 1. The annual exclusion ($15,000) is subtracted leaving $35,000 on line 3 and line 11. That amount goes to page 1, part 2, line 1 where the tax is calculated and later in the form the $11.4 million gift exclusion will zero the tax out. As you have said, the same information on your spouse’s form is also filed so the total amount of the gift is accounted for.
I understand all that. My question is simply whether "gift splitting" is something I need to do. I'm going to assume it's not because the gift is already split. It's just the form instructions which confuse me. So I decided to phone the IRS.
After 46 minutes on hold, I spoke to a rep via their special Gift & Estate Tax phone number only available 8:00am - 3:30pm EASTERN time (I'm in CA).
These friendly phone reps do not provide help completing Form 709. The Tax Assistance group no longer exists, she told me. I assume budget cuts got them the axe. The current "special" group can only help with the mechanics, as in you sent a form to the wrong address or want to inquire about a form's status. SMH.
You are correct. You have already split the gift by each of you filing a form for half of the gift.
Definition of a Split Gift: A split gift refers to a gift that is made by a spouse to a third person. The gift is given to a third person for gift tax purposes. It is also known as gift splitting or gift splitting election. ... Under split gift, a married couple can treat gifts made by one spouse as if they were made one-half by each spouse.
I’m confused and am not able to get online or phone help from irs.......so the $11.4 million exclusion goes where? Part 2, line 7? And is that in every case? So basically if giving $100,000 gift, there will be no balance due as long as the donor has not exceed the lifetime giving amount of 11.4 million? And if splitting the gift between spouses, each $50,000 gift would be treated the same?
Yes, it goes on line 7 of part 2. Yes, each spouse completes a separate 709 and each half of the gift is treated the same on each form. If you don’t have it, the instructions for the form are here:
https://www.irs.gov/pub/irs-pdf/i709.pdf
Hi,
Thank you for clarifying about gift splitting. My situation is slightly different. Please tell me if I am correct given the following situation:
My husband & I own a joint brokerage account held inside a California Living Trust. As grantor of the trust, I alone signed off to transfer shares of mutual fund worth $28,000 from this joint account to my daughter's individual brokerage account. Because the mutual fund is community property, I gather that my husband & I each need to file a separate gift tax return for half of the $28,000 to split gift. Please tell me if I am thinking correctly for Schedule A, Line 1:
Column D (Donor's adjusted basis of gift): $18,000
Column E (Date of gift): The date the transfer was signed by me in 2020.
Column F (Value at date of gift): $18,000
Column G (For split gifts, enter 1/2 of Column F): $9,000
Column H (Net Transfer … subtract col. G from col. F): $9,000
All three of us are U.S. Citizens; my daughter lives in California, and my husband and I now reside in Canada. I understand that we are supposed to mail both of the gift tax returns together in the same envelop.
I am wondering if the donor's adjusted cost basis in Column D is referring to the original cost when I purchased the shares many years ago, or is $18,000 correct the way it is as shown above.
Also, the form 709 is for 2019. Do I have to download a new one that is for 2020? And what proof documents do I need to include with the gift tax returns.
Please advise. Thanks very much in advance. kk
@chubbycheeky wrote:I am wondering if the donor's adjusted cost basis in Column D is referring to the original cost when I purchased the shares many years ago, or is $18,000 correct the way it is as shown above.
Also, the form 709 is for 2019. Do I have to download a new one that is for 2020? And what proof documents do I need to include with the gift tax returns.
The donor's adjusted basis would be your original cost (plus any additional costs or improvements), not the fair market value at the time of the gift.
For gifts made during the 2020 calendar year, you will want to use the 2020 version of Form 709.
For assets other than cash, it is best to include a qualified appraisal or a detailed description of the method used to determine the fair market value of the gift.
You do not have to file form 709. Each person can give a gift of $15,000 to an individual without consideration of gift tax. So you and your husband can give your daughter $30,000. Your $28,000 gift is below that level.
If the donor spouse made gifts of more than $15,000 but not more than $30,000, they can file just one Form 709 and check the consent box.
See https://www.irs.gov/instructions/i709#idm140554801355200
RocketJSquirrel: hope you are still watching this thread a year later... I'm facing the same issue and wondering how you ended up filing your return? I'm in community property state TX and I'm tending to interpret the rules as I think you have, i.e. that the split in the gift occurs automatically because of community property rules, so I don't think I need to elect gift splitting in question #12 on the form, or show the split on Schedule A in column G.
So for example if I made a gift to my child of $50,000 in a single transaction, I think the correct reporting is for each of my spouse and me to file a gift tax return where we would each show a $25,000 gift in schedule A. We would not select gift splitting, and we would not show the $50,000 total anywhere on the form. Is that the way you ended up doing it, and was it accepted without question by IRS? I'm a bit concerned that the end result is a form that doesn't have a very good audit trail, given that the $25,000 figures won't match the $50,000 transfer amount. So am looking for some feedback to confirm that is the expected result in a community property state.
Thanks
Gift splitting comes into play (typically) when the gifted property is held individually (i.e., as separate property); the spouse who owns the property (separately) can elect to split the gift so one-half is treated as given by her and one-half is treated as given by her spouse.
With respect to gifts made where the property is held as community property (or certain property considered to be jointly held), the gift is considered to be made one-half by each spouse.
Thanks TagTeam: so as a follow-up, do you think people in my situation should mail both spouses' gift returns in the same envelope? Line #17, which asks whether a return will be filed by spouse, and says to submit both in the same envelope, only needs to be answered if gift splitting was selected in #12. So the implication is that if gift splitting is not selected, the returns should be submitted separately. But I'm leaning towards putting them in the same envelope anyway to help the IRS connect the dots should they try to match the gifts to actual transfers.
Frankly, @TexasTea, if I were going to mail the returns, I would use two separate envelopes so there is no question that two returns were filed (obviously, use a method whereby you can get some sort of proof of mailing and delivery).
As far as "connecting the dots", the IRS will likely do little, or most likely nothing, prior to exceeding the lifetime exemption or at such time as the donor is deceased and a final return is filed (and an estate tax return, at such time when a 706 is filed they tend to pull all previously filed 709s).
Thanks @Anonymous_ for those comments: you make a good point that I hadn't thought about of mailing separately to get proof of filing both returns. Also appreciate the perspective about how the IRS will handle the returns.
Just stumbled upon my old thread.
When I mailed my Forms 709 last year, I mailed them in the same envelope even though "gift splitting" was not explicitly selected. I also included a brief letter explaining in English what the transaction was all about and stating that Mrs. Squirrel and I were gifting community property. I figure the simpler I could make it for the IRS, the smoother it would be handled.
A year later, I haven't heard a peep from the IRS, as expected.
@bobweissman wrote:A year later, I haven't heard a peep from the IRS, as expected.
There is no reason for them to contact you if there is no tax due on a 709. I have heard from them decades later after filing 706s, though. I suspect they save those 709s just about forever (unlike income tax returns).
Thanks for the update @bobweissman Including the letter sounds like a good pre-emptive move; it's too bad there is no feedback loop from the IRS to find out what they actually do with a letter like that. I suppose if the only thing they do is scan it and file it, at least it will be there in the file at some future date when someone reviews everything, and if that helps reduce the potential for escalation into an examination then it would make it worth the effort.
@TexasTea wrote:too bad there is no feedback loop from the IRS to find out what they actually do with a letter like that. I suppose if the only thing they do is scan it and file it, at least it will be there in the file at some future date when someone reviews everything
I had no expectations they would save the letter. I wrote it solely to make the receiving clerk's job easier. It was about 3 sentences, 2 of which were "Enclosed please find two Forms 709" and "My wife and I together gifted community property in the amount of $_____ to _____" or words to that effect.
Also, just in case I made a mistake filling out 709s for the first time, the clerk would understand my intent.
Hi TexasTea,
I have not filed yet. I am still struggling with interpretations. After reviewing the i709 again, then comparing it to other information sources online; here's what I deduced so far:
So a Gift from one of the community property states is automatically considered a gift of community property which is treated as one-half made by each spouse. I gather that means you have to file two separate returns (one for each spouse, with each return gifting 1/2 of the total amount received by your child).
I think that means $25k in your case, and only $14k in my case. Therefore, you have to file because 1/2 of your total gift ($25k) is over the $15k annual exclusion limit. And no gift tax return is required of me; because 1/2 of our total gift ($14k) is under the annual exclusion.
That is, until someone threw a monkey wrench into the pile by stating that "even though the gift is from a community property account, it is treated as individual property if only one spouse signed the check (even if both spouse's names are printed on the check)". The recommendation was for each spouse to write a separate check for 1/2 of the total gift, instead.
That recommendation makes sense. So for safety sake, my husband and I will do that next year. We will each write a check for $15k to stay under the $30k annual exclusion to avoid filing gift tax return. At the same time, the two bank checks will leave a paper trail for the gifts in case IRS comes asking for it.
Meanwhile, $28k has already been gifted away in a single transaction to our child this year, and I am back to square one bouncing between "to file" or "not to file".
At this point, I am inclined to do the following to play it safe:
Stop fiddling with split-gift. Instead, submit two separate returns: one for husband and one for myself, along with an explanation page and proof documents.
On each return, decline from GIFT-SPLITTING by answering "NO" on page 1, Part 1 - General Information, line 12; and leave line 13-18 blank.
On Schedule A, Part I:
column B -- after donee name, address, and description of gift, etc.; write "
SEE DETAILS IN CONTINUATION PAGES ATTACHED
".column C -- blank
column D -- 1/2 of the cost basis to purchase the 28K stocks
column E -- Signature Date for the single transfer of stocks
column F -- 14k (value of the stocks at date of gift)
column G -- blank (not gift splitting)
column H -- 14k (Net Transfer)
CONTINUATION PAGE -- 1 of 5 (Overview:(
Gift was made from a joint account in a community property state via a single transaction with only one spouse's signature. Assuming this gift is considered made 1/2 by each spouse, we would not be required to file because the amount will be under the $15k annual exclusion for each spouse.
However, because the transaction document only shows the full amount of $28k transferred, signed by only one spouse, we are filing two separate returns to make sure that only 1/2 of that $28k is accounted for in each spouse's lifetime exclusion records for documentation purpose. I hope this will have the same effect as gift splitting, even though the gift is from community property .
Please advice if this line of thought is incorrect, and let me know if any further information is required.
CONTINUATION PAGE -- 2 of 5 (1st of 4-page proof document showing details of the single transfer of $28k stocks to child, signed by one parent only) -- Note on the document to indicate that the 28k is a gift of community property: 14k was gifted by husband, and 14k was gifted by wife, total gift received by child is 28K.
CONTINUATION PAGE -- 3, 4, and 5 of 5 (rest of proof document).
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I will mail each return in a separate envelop per the advice of tagteam (Level 15), in order to get proof of mailing and delivery.
Hopefully, this will provide enough paper trail to set the clock ticking officially for the 3-year statue of limitation for IRS review; as well as make it clear for future gift returns when it's time to tally up lifetime exemptions.
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Any suggestion to correct or improve this will be appreciated.
And thanks to everyone here who have contributed to help clarify this issue.
My wife and I recently refinanced our second home and added our daughter to the mortgage and deed. She will now be living in the house full time as a co-owner.
On investigating I discovered an example which stated that this could be handled as a gift and sell transaction. This is how it was explained. My daughter would not only receive half ownership in the house, but also assume half the mortgage. Is this allowable and if so once the calculations are done, if the gift value is less than $15,000 do I need to submit a 709 since she is now a co-owner and co-mortgagee. Here is a numerical example.
House value is $200,000 so we gift her $100,000
Mortgage is $180,000 so she assumes $90,000
Therefore we have gifted her $10,000 which is less than the $15000 allowable amount.
Since the gift is less than $15,000 do we still need to submit a 709.
@Fran2021 wrote:Since the gift is less than $15,000 do we still need to submit a 709.
No, you do not need to file a Form 709 in this instance.
Your equity in the second home is $20,000 so that figure would be the maximum amount of the gift if you gave your daughter a 100% interest. Since you are giving her one-half, the amount of the gift is $10,000, which is well under the amount of the annual exclusion.
@Fran2021 one comment that may or may not apply to you depending on what state you live in: if you happen to live in a community property state, you and your wife could make a gift of up to $30,000 before triggering a filing requirement for form 709, because the gift would automatically be considered to have come 1/2 from each of you. In non-community property states, you could still make a $30,000 gift without exceeding the annual gift tax exemption, but to get that result you would have to file a 709 and elect gift-splitting.