U.S. Gift Tax Guide for Expats & Non-Residents

U.S. citizens and green card holders living abroad remain subject to U.S. gift tax on worldwide transfers. Non-resident aliens are taxed only on certain U.S.-situs assets. Understanding the rules for Form 709 and Form 3520, along with projected 2025 thresholds, is crucial for global families to ensure compliance and avoid significant penalties.

Who is Subject to U.S. Gift Tax?

The U.S. gift tax applies to transfers of property where full value is not received in return. The rules differ significantly based on the donor's status.

For U.S. persons (citizens and resident aliens/green card holders), the obligation is global. All gifts, regardless of where the asset is located or where the recipient resides, are subject to U.S. gift tax rules.

For Non-Resident Aliens (NRAs), the rules are much narrower. An NRA is only subject to U.S. gift tax on transfers of tangible property physically located within the United States. This includes assets like U.S. real estate, vehicles, or artwork. Crucially, intangible property—such as shares in U.S. corporations, partnership interests, or funds in a U.S. bank account—is exempt from gift tax for NRAs.

On the receiving end, while there is no U.S. tax on receiving a gift, U.S. persons must report large gifts or bequests received from foreign sources. This dual system—tax on giving for U.S. persons and a reporting requirement on receiving—demands careful planning, especially for cross-border families.

Form 709 vs. Form 3520: Giving vs. Receiving

Understanding which form to use is the first step toward compliance. Form 709 is for reporting gifts you've given, while Form 3520 is for reporting gifts you've received from foreign sources.

Aspect	Form 709 (U.S. Gift Tax Return)	Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts)
Who Files	U.S. persons making worldwide gifts above the annual exclusion. NRAs making gifts of U.S.-situs tangible property above the annual exclusion.	U.S. persons receiving foreign gifts or bequests above reporting thresholds. Not filed by NRAs.
Purpose	To report gifts that exceed the annual exclusion, track lifetime exemption usage, and calculate any tax due.	An informational return to disclose foreign financial inflows to the IRS. It is for reporting only.
Tax Implications	Potential tax at rates of 18% - 40%, though often no tax is paid due to the large lifetime exemption.	No tax is due on the gift itself. However, penalties for non-filing are severe (up to 25% of the gift value).
Due Date	April 15 following the year of the gift. Can be extended to October 15.	Typically the same due date as your income tax return (Form 1040), including extensions.

2025 Annual Exclusions & Lifetime Exemptions

The IRS provides generous exemptions that allow most people to give gifts without paying tax. These figures are adjusted for inflation. (Note: 2025 figures are projections based on inflation trends and will be officially confirmed by the IRS in late 2024.)

• Annual Gift Exclusion: For 2025, it is projected to be $19,000 per recipient. A U.S. person can give up to this amount to any number of individuals during the year without filing a gift tax return or using any lifetime exemption.
• Lifetime Gift and Estate Tax Exemption: This is a unified credit that applies to both gifts made during your lifetime and your final estate. For 2025, it is projected to be $13.99 million per individual. Gifts exceeding the annual exclusion reduce this lifetime amount.
• NRA Exemptions: Non-resident aliens can also use the annual gift exclusion ($19,000) for gifts of U.S. tangible property. However, they do not have a lifetime gift tax exemption. Their estate tax exemption for U.S.-situs assets is only $60,000.
• Form 3520 Reporting Thresholds: A U.S. person must file Form 3520 if they receive more than $100,000 from a non-resident alien individual or foreign estate, or more than a projected $20,150 for 2025 from a foreign corporation or partnership.

Special Rules: Spouses, Trusts, and Cross-Border Gifts

Cross-border relationships and complex assets introduce additional rules that are critical for compliance.

• Gifts to Spouses: Unlimited tax-free gifts can be made between U.S. citizen spouses. However, if the recipient spouse is not a U.S. citizen, the gift is subject to a special annual exclusion, projected to be $193,000 for 2025.
• Direct Tuition and Medical Payments: A crucial and often overlooked strategy is making direct payments for another person's tuition or medical expenses. Payments made directly to the educational institution or medical provider are completely exempt from gift tax, regardless of the amount, and do not use up any annual or lifetime exclusion.
• Gifts to Trusts: Transferring assets to a trust is considered a gift. If the trust is foreign or has foreign beneficiaries, complex reporting rules on Form 3520 and Form 3520-A may be triggered.
• NRA Gifting Strategy: Since NRAs are only taxed on U.S. tangible property, a key planning strategy is to gift exempt intangible assets (like U.S. stocks) or assets located outside the U.S.

Step-by-Step Filing Guide for 2025

Accuracy is critical when preparing these forms. Filings are generally done on paper, though some providers may support e-filing.

For Form 709 (Givers):

1. Identify all gifts made: List every transfer of value to each individual.
2. Apply Annual Exclusions: Subtract the annual exclusion ($19,000 for 2025) for each recipient to determine your total taxable gifts.
3. Complete Form 709: Report all gifts, even non-taxable ones that require disclosure (like gift splitting with a spouse). Calculate tax and apply your available lifetime exemption.
4. File by the Deadline: The form is due April 15, 2026, for gifts made in 2025. Mail the return to the IRS service center listed in the form instructions.

For Form 3520 (Receivers):

1. Track Foreign Gifts: Aggregate all gifts received from foreign individuals and entities throughout the year.
2. Check Reporting Thresholds: Determine if you exceeded the $100,000 (individual) or ~$20k (corporate) thresholds.
3. Complete Form 3520: Use Part IV to report the gifts, providing the date, description, and value of the property received.
4. File with Your Tax Return: Attach Form 3520 to your Form 1040 and file by your regular tax deadline, including extensions.

Risks, Penalties, and Planning Strategies

Failure to comply with gift tax rules can be costly. Late filing or non-payment on Form 709 can lead to penalties up to 25% of the tax due, plus interest. For Form 3520, the penalties are particularly harsh: late filing can trigger a penalty of 5% of the gift's value per month, capped at a total of 25%. Given that no tax is even due, this penalty is purely for non-disclosure.

Effective planning strategies include:

• Leveraging Exclusions: Maximize the use of the annual gift exclusion and direct payment exclusion for tuition and medical expenses.
• Gifting Appreciating Assets: Gifting assets that are expected to grow in value can remove future appreciation from your taxable estate.
• Gift Splitting: Married U.S. couples can combine their annual exclusions to give up to $38,000 (projected for 2025) to a single recipient tax-free.
• NRA Situs Planning: For NRAs, gifting U.S. stocks or converting U.S. tangible property to an intangible (e.g., by holding real estate in a carefully structured corporation) can avoid U.S. gift tax entirely.

Take Action: Achieve Gift Compliance Today

The complexities of gift and estate tax for expats and non-resident aliens require specialized knowledge to optimize transfers, ensure full compliance, and mitigate risk. At a specialized expat CPA firm, our team of experts handles Forms 709 and 3520, develops international wealth transfer strategies, and provides penalty abatement support. Schedule a consultation today for personalized advice and gain peace of mind in your cross-border financial affairs.