What is gift splitting?
Gift splitting is an estate‑planning technique that lets married couples treat a single gift to a third party as if each spouse made half the gift. By combining their individual annual exclusions, spouses can double the amount they can transfer free of gift tax in a calendar year. Gift splitting is authorized by the IRS and requires both spouses’ agreement and, in most cases, a gift tax return (Form 709).
Key facts (2024)
– Individual annual gift tax exclusion: $18,000 per donee.
– Married couple using gift splitting: $36,000 per donee (two × $18,000).
– Lifetime gift (and estate) tax exemption: $13.61 million per individual (2024).
– Gift tax return: Form 709 (United States Gift (and Generation‑Skipping Transfer) Tax Return) must be filed for gifts above the annual exclusion or when gift splitting is elected.
– Recipients generally do not report gifts as income.
Sources: IRS Instructions for Form 709; IRS inflation adjustments for tax year 2024.
How gift splitting works (plain explanation)
– If one spouse gives a gift that exceeds that spouse’s individual annual exclusion for a donee, the couple can elect to treat the gift as made one‑half by each spouse.
– Example: Spouse A gives $30,000 to a child in 2024. Spouse B agrees to split. For tax purposes the gift is treated as $15,000 from A and $15,000 from B—both amounts are at or below the $18,000 individual exclusion, so no gift is taxable.
– Even when gift splitting eliminates current gift tax, Form 709 usually must be filed to report the split and preserve record of any amount that counts against the lifetime exemption.
– The donor (or donors) are responsible for filing and for any tax due; the donee does not include the gift as taxable income.
Source: IRS Instructions for Form 709; IRS FAQs.
Practical steps to use gift splitting (step‑by‑step)
1. Confirm whether gift splitting is appropriate
– Determine the gift amount and the intended recipient(s).
– Check the current annual exclusion ($18,000 per person in 2024) and the couple’s remaining lifetime exemption, if relevant.
2. Make the gift
– Either each spouse writes a separate check (e.g., $15,000/$15,000) or one joint check is written and the spouses elect gift splitting on Form 709.
– Ensure the gift is actually made to the intended third party (gifts to your spouse are governed by separate marital‑deduction rules and often aren’t subject to the same limits).
3. Agree to split the gift
– Both spouses must consent to gift splitting. The consent is documented when filing Form 709.
– If spouses do not both consent, the gift cannot be split.
4. File Form 709 when required
– File Form 709 for the calendar year in which the gift was made if any gift to an individual exceeds the annual exclusion, if you elect gift splitting, or for certain other transfers (e.g., generation‑skipping transfers).
– The return is normally due with your federal income tax return (April 15 for calendar‑year taxpayers), although Form 709 is filed separately.
5. Keep careful records
– Retain copies of checks, bank statements, receipts from donees, the filed Form 709, and any correspondence documenting the spouses’ agreement to split gifts.
6. Consult a tax or estate professional
– For large gifts, complex asset transfers (real estate, business interests), or cross‑border issues, get professional advice to avoid unintended gift‑tax or estate‑tax consequences.
Special considerations and common questions
– Who pays the gift tax? The donor (or donors) is responsible for the tax and for filing Form 709. Donees do not include gifts as income. (IRS FAQ: “Who Pays the Gift Tax?”)
– Do you always have to file Form 709 if you split gifts? Generally yes when you elect gift splitting or if gifts to any one donee exceed the annual exclusion. Filing documents the split and preserves any amounts applied to the lifetime exemption. (IRS Instructions for Form 709)
– Gifts to spouses: Gifts to a spouse who is a U.S. citizen are generally unlimited for federal gift tax purposes (the marital deduction). Special rules apply for gifts to non‑U.S. citizen spouses. (See IRS FAQs.)
– Tuition and medical payments: Payments made directly to an educational or medical provider on behalf of someone else are not treated as gifts for purposes of the annual exclusion (i.e., they are excluded). To qualify, the payment must be made directly to the institution/provider. (IRS FAQ: “What Can Be Excluded From Gifts?”)
– Gifts to political organizations and certain transfers are excluded from gift treatment. (IRS FAQ.)
– Divorce and timing: If a couple divorces before filing the return that would report a past‑year gift, they generally cannot elect gift splitting for that year. Make sure to record agreements and file timely. (Investopedia summary; see IRS instructions.)
– Community property states: Community property law can affect how gifts are treated between spouses. State law and federal tax rules intersect—consult an advisor if you live in a community property state.
Practical example
Scenario: Robert and Mallory want to give $30,000 to their daughter and son‑in‑law for a home renovation in 2024.
– If Robert gave $30,000 alone, that would exceed his $18,000 annual exclusion; he would have to file Form 709 and possibly apply $12,000 of his lifetime exemption.
– If Robert and Mallory elect gift splitting, the gift is treated as $15,000 from each spouse—each amount is under the individual $18,000 exclusion—no current gift tax is due and they file Form 709 to report the election.
Ways to avoid (or reduce) gift tax liability
– Stay within the annual exclusion amount ($18,000 per donee in 2024). Spread gifts across multiple years to avoid exceeding the annual limit.
– Use gift splitting with a spouse to double the effective annual exclusion per donee ($36,000 in 2024 for a married couple that elects to split).
– Pay tuition or medical expenses directly to educational or medical providers on behalf of another person (these payments are excluded from gift treatment).
– Make use of the lifetime gift tax exemption to shelter larger transfers from tax—remember that gifts that exceed annual exclusions reduce the lifetime exemption and may affect estate tax on death.
– For durable planning, consider trusts, lifetime estate plans, and professional advice to structure transfers tax‑efficiently.
Recordkeeping checklist
– Copy of the check(s) or transfer receipt showing the gift.
– Date and description of the gift and recipient.
– Written note of the spouses’ agreement to split (if applicable).
– Copies of Form 709 filed and any correspondence with a tax advisor.
– Documentation if the gift was for medical/educational purposes paid directly to a provider.
Cautions and tips
– Always check current year limits before making gifts—the annual exclusion and lifetime exemption are adjusted periodically for inflation. (IRS inflation adjustments.)
– Filing Form 709 does not create immediate income tax consequences for the recipient, but it does preserve the record of any amounts that reduce your lifetime exemption.
– For gifts of property (real estate, business interests, stock), determine fair market value at the date of the gift and consider potential capital gains consequences for donees when they later sell the property.
– Consult a qualified tax or estate planning attorney/accountant for transfers involving large sums, illiquid assets, or complex family situations.
Bottom line
Gift splitting is a straightforward, IRS‑authorized method for married couples to double the effective annual gift exclusion per donee. It can be a powerful tool to transfer wealth during life without triggering gift tax, but it requires both spouses’ consent and careful documentation—typically including filing Form 709. Because rules and exemption amounts change over time and complex transfers can have broader tax and estate consequences, consult a tax professional for large or complicated gifts.
Primary sources and further reading
– IRS, Instructions for Form 709 (United States Gift (and Generation‑Skipping Transfer) Tax Return).
– IRS, IRS Provides Tax Inflation Adjustments for Tax Year 2024.
– IRS, Frequently Asked Questions on Gift Taxes (select relevant questions: “Who Pays the Gift Tax?”; “What Can Be Excluded From Gifts?”; “What Is Considered a Gift?”).
(Investopedia summary on gift splitting and examples informed this overview.)
Continuation — Additional Sections, Examples, Practical Steps, and Summary
Who Can Elect Gift Splitting?
– Married couples may elect to split gifts made by either spouse during the calendar year. The election is made on IRS Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return).
– Both spouses must consent to the split and the consenting spouse must sign the Form 709 (or a statement attaching to it) to confirm consent.
– Important: the spouses do not have to file joint income tax returns to make the gift-splitting election. They simply must both be U.S. persons (U.S. citizens or residents) at the time of the gift. (See IRS Instructions for Form 709.)
Community-Property States and How They Affect Gift Splitting
– In community-property states, property acquired during marriage is generally owned equally by both spouses. That affects how gifts of community property are treated for gift-tax purposes.
– Example: If a spouse gives community property to a third party, half of the gift may be treated as coming from each spouse automatically under community-property rules (which can reduce the need to elect gift splitting for some gifts). The interplay is complex; check state rules and IRS guidance when community property is involved.
Special Rules and Exceptions
– Gifts to a U.S.-citizen spouse: Generally unlimited marital deduction — you can give an unlimited amount to a spouse who is a U.S. citizen without incurring gift tax or using exclusion, but you still may need to file Form 709 in some situations.
– Gifts to a noncitizen spouse: A special higher annual exclusion applies (the amount is adjusted by the IRS annually). Check current IRS guidance before making large gifts to a noncitizen spouse.
– Tuition and medical payments: Payments made directly to an educational institution for tuition or directly to a medical provider for someone else are not treated as taxable gifts and do not consume the annual or lifetime gift exclusions — provided the payment is made directly to the institution/provider.
– Gifts to political organizations are not eligible for exclusion.
– Gifts in trust, gifts to minors (UTMA/UGMA accounts), or gifts of interests in closely held businesses have special valuation and reporting rules.
Practical Steps to Use Gift Splitting Correctly
1. Decide the gift amount and who the recipients will be.
2. Confirm that both spouses are willing to split the gift and that both are U.S. persons.
3. Determine whether any exceptions apply (direct tuition/medical payments, gift to spouse, gift to political organization, special rule for noncitizen spouse).
4. Value the gift as of the date of transfer. For property other than cash, obtain reliable appraisals if necessary.
5. Keep clear documentation (checks, account records, appraisal reports, letters describing intent, receipts showing payment directly to institutions for tuition/medical).
6. Prepare and file Form 709:
– The donor (the spouse considered to have made the gift) files Form 709 by the gift-return due date (normally the same as the federal income tax return due date, April 15, unless extended).
– If both spouses split a gift, the donor should indicate that on Form 709 and attach the consenting spouse’s signature or statement.
– Even if no gift tax is due (because gifts are within annual exclusion or because lifetime exemption covers the excess), Form 709 may be required to report gifts and the split election.
7. If you expect the gift situation to use some of your lifetime exemption, consult an estate tax professional to understand implications for estate tax planning and portability elections.
8. Retain copies of filed returns and supporting documentation for several years.
Examples
Example 1 — Simple Cash Gift (annual-exclusion only)
– Facts: In 2024, each spouse can give up to $18,000 to any one donee without using any lifetime exemption. A married couple wants to give $36,000 to their adult child.
– Result: If they split the gift, it is treated as $18,000 from each spouse, so no gift tax or Form 709 reporting is required for those gifts that fall at or below the annual exclusion. (If they elect to split and want to be certain of reporting, they may still file Form 709 if they wish to document the split; generally no tax or lifetime-exemption use.)
Example 2 — Larger Gift Using Gift Splitting to Avoid Immediate Tax
– Facts: In 2024, the couple gives $100,000 cash to their daughter. The annual exclusion per person is $18,000 in 2024.
– Analysis:
– Without splitting, one spouse giving $100,000 would have $82,000 in excess of the annual exclusion to report on Form 709 and that excess would reduce that spouse’s lifetime gift/estate-tax exemption ($13.61 million in 2024) but produce no immediate tax unless the lifetime exemption is exceeded.
– With gift splitting (treating the gift as $50,000 from each spouse): Each spouse uses $18,000 of annual exclusion and has $32,000 excess to report. Together they would report $64,000 of excess that reduces their combined lifetime exemptions (as allocated on their Form(s) 709). No immediate tax is likely due unless cumulative lifetime gifts exceed the exemption.
– Practical outcome: Gift splitting can simplify allocation and potentially reduce complexity, but Form 709 filings are still required.
Example 3 — Paying College Tuition Directly
– Facts: Parents want to pay $60,000 toward their child’s college tuition in 2024.
– Proper approach: Pay the tuition directly to the educational institution. Direct payments for tuition are excluded from the gift rules and do not use the annual or lifetime gift exclusion. If you make a $60,000 payment directly to the school for tuition, you generally do not need to file Form 709 for that payment.
– Caveat: Room and board or other non-tuition expenses paid directly to a student or institution are not automatically excluded as tuition gifts.
Example 4 — Gift of Property With Mortgage
– Facts: Spouse A transfers real property with an outstanding mortgage to a third party or makes a gift subject to assumed debt.
– Valuation issues: The gift’s value includes any debt the donee assumes. You must determine fair market value and subtract any consideration paid; if the donee assumes a mortgage, the amount of the mortgage affects the taxable amount of the gift. Appraisals and professional help are recommended.
Generation-Skipping Transfer (GST) Concerns
– If you split gifts that are GST transfers (gifts to grandchildren or other skip-persons), you may need to allocate GST exemption on Form 709. Gift-splitting rules apply to GST allocation as well — special attention to the GST tax regime and exemption is important.
Common Pitfalls and How to Avoid Them
– Forgetting to file Form 709: Even if no tax is due, you may be required to file to elect split gifts or to report gifts over the annual exclusion.
– Poor documentation: Keep checks, bank records, trust paperwork, or receipts showing direct tuition/medical payments.
– Confusing marital deduction rules: Gifts to U.S. citizen spouses are usually tax-free (marital deduction), but gifts to noncitizen spouses have different limits. Don’t assume all spousal gifts are fully excluded without checking the noncitizen-spouse rules.
– Misvaluing noncash gifts: Get appraisals for real estate, business interests, artwork, and other noncash assets to support valuations used on Form 709.
– Ignoring state tax or community-property nuances: State law can affect ownership and the treatment of gifts; consult a tax attorney or CPA in your state.
Recordkeeping Checklist
– Date and amount of each gift
– Description of property gifted (including appraisals if noncash)
– Copies of checks or transfer confirmations
– Signed consent for gift-splitting (or signature on Form 709)
– Proof of direct payments (tuition/medical)
– Copies of all Form 709 filings and any correspondence with the IRS
When to Consult a Professional
– Large or complex gifts (significant fraction of the lifetime exemption)
– Gifts involving business interests, closely held entities, or fractional interests
– Gifts in community-property states with complicated ownership facts
– Potential GST issues (gifts to grandchildren or skip-persons)
– Estate planning coordination (wills, trusts, portability of estate-tax exemption)
Additional Practical Tips
– Consider annual gifts over multiple years. Spreading gifts across years can keep them inside annual exclusions and avoid using lifetime exemption.
– Use 529 plans: Contributions to 529 college savings plans can be front-loaded (five-year election) to use up to five years’ worth of annual exclusions at once — e.g., for 2024, a married couple could front-load up to 5 × $18,000 × 2 = $180,000 for a single beneficiary if they elect to spread the contribution over five years on the tax returns.
– Coordinate with inherited assets: Keep track of lifetime exemption usage since gifts reduce your available estate exemption and can affect estate tax planning.
The Bottom Line — Summary
Gift splitting is a useful and relatively straightforward estate-planning technique that allows married couples to double the annual gift tax exclusion available for transfers to individuals. For 2024, that means a couple can generally give up to $36,000 per donee without using lifetime exemption or owing gift tax (based on the $18,000 per-person annual exclusion). Even when no gift tax is due, accurate valuation, documentation, and timely filing of Form 709 (when required) are essential to preserve tax benefits and avoid surprises. Special rules apply for direct tuition/medical payments, gifts to spouses (especially noncitizen spouses), community-property situations, and gifts that implicate the generation-skipping transfer rules. Because gift and estate tax law is complex and numbers are periodically adjusted for inflation, consult the current IRS guidance and a tax or estate-planning professional before making large or complicated gifts.
Selected Sources
– Internal Revenue Service, Instructions for Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return).
– Internal Revenue Service, “Frequently Asked Questions on Gift Taxes.”
– Internal Revenue Service, “IRS Provides Tax Inflation Adjustments for Tax Year 2024.”
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