What Is Gift Splitting?
Let me explain gift splitting to you directly: it's an estate planning tool that married couples can use to double their allowed annual gift tax exclusion amount. The gift tax exclusion is the amount you can transfer to another person as a gift without paying the gift tax imposed by the IRS. As a couple, you can use this to provide financial help to family or friends and avoid the gift tax. If you're married and want to take advantage of gift splitting, you must file joint tax returns to qualify.
Key Takeaways
Gift splitting lets a married couple gift twice as much as an individual without facing a gift tax. To qualify, you and your spouse must file a joint tax return. For 2024, the annual gift exclusion for married couples filing jointly is $36,000. You need to file Form 709 if you use gift splitting or if your gift exceeds the threshold.
How Gift Splitting Works
Gifts of money or property are subject to a gift tax if you exceed the annual or lifetime gift exemption. Gift splitting is a straightforward way for married couples to maximize their annual gift tax exclusion. The IRS permits married couples who file jointly to double their gift amount through this method.
Here's how it operates: you and your spouse combine your individual allowances as if each contributed half the gift. The thresholds apply to each recipient. For gifts over the annual threshold, you must file Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return with the IRS.
This means you could give up to $36,000 to any number of people in 2024 without tax consequences. Anything over the $18,000 per individual is still not taxable if it's under the 2024 lifetime gift tax limit of $13.61 million.
To qualify in the IRS's view, both spouses must agree to the gift and specify the details when filing taxes. The giver pays any tax and files the return, so recipients usually don't report the gift as income.
Fast Fact
For the 2024 tax year, the annual gift exclusion limit is $36,000 for a couple, twice the $18,000 for an individual.
Special Considerations
If you divorce before filing taxes for the gift year, neither spouse can remarry for gift splitting to qualify. Also, neither spouse can benefit from the gift; it must go to a third party.
Gifts of any amount to spouses or political organizations, and payments for tuition or medical expenses for others, are generally not taxable. For medical or educational gifts, pay directly to the provider to bypass exclusion limits.
Tip
As with all complex tax matters, consult a tax professional before making large gifts.
Example of Gift Splitting
Consider this hypothetical: Robert and Mallory McKay's daughter and son-in-law are expecting a second child and need to convert a bedroom into a bathroom costing about $30,000. The McKays want to help without triggering gift taxes.
They decide to gift-split: Robert writes a $15,000 check, Mallory another for $15,000, or they use a joint check for $30,000 and split it. This avoids the tax but requires filing Form 709. No taxes are due if under the lifetime limit.
What Is the Annual Exclusion Amount for Gifts?
The 2024 annual exclusion is $18,000. Amounts below this aren't subject to gift tax, and overages aren't taxed if under the $13.61 million lifetime limit.
What Are Some Ways to Avoid a Gift Tax?
You can spread gifts over years to stay within limits. Provide gifts for education or medical expenses directly to the facility to avoid taxes. Married couples can gift-split to increase the tax-free amount.
What Qualifies As a Gift?
Most items like cash, real estate, and assets qualify as gifts. Exceptions are those for educational or medical purposes and gifts to political organizations.
The Bottom Line
You can give money or assets without taxes if under certain amounts. Couples can split gifts to avoid taxes, with a 2024 limit of $18,000 individually or $36,000 jointly. If splitting, file Form 709.
