Key Takeaways
- Married couples split gifts for double tax exclusions.
- Requires both spouses alive, married, and consenting.
- Files jointly using IRS Form 709 consent.
- Maximizes tax-free gift transfers to third parties.
What is Gift Splitting?
Gift splitting is a tax election that allows married U.S. citizen spouses to treat a gift made by one spouse to a third party as if each spouse gave half, effectively doubling the amount exempt from gift tax under the annual exclusion and lifetime exemption limits. This strategy helps couples optimize tax-free transfers while minimizing immediate gift tax liability. The rules around gift splitting relate to concepts like the ability to pay taxation and require joint consent on tax filings.
Key Characteristics
Gift splitting offers distinct advantages and comes with specific eligibility criteria:
- Annual Exclusion Doubling: Couples can combine individual annual exclusions (e.g., $18,000 each in 2025) to double the tax-free gift amount per recipient.
- Applies Only to Married Couples: Both spouses must be alive, married, and U.S. citizens or residents at the time of gifting.
- Third-Party Gifts Only: The gift must be to someone other than the spouse; gifts directly to a spouse do not qualify.
- Joint Consent Required: Both spouses must file Form 709 and agree to split gifts made during the tax year.
- Present Interest Gifts: Only gifts giving immediate rights (not future interests) qualify, which aligns with rules for immediate family transfers.
How It Works
When spouses elect gift splitting, the IRS treats a gift from one spouse as made equally by both. For example, if one spouse gives $34,000 to a child, the gift is considered $17,000 from each spouse, fully covered by their respective annual exclusions. This avoids using any of their lifetime gift and estate tax exemptions.
To implement gift splitting, both spouses must file a joint election on IRS Form 709 by the tax deadline. Once elected, all third-party gifts during that year are split, and both spouses share joint and several liability for gift taxes. This election is irrevocable for the tax year and requires careful coordination.
Examples and Use Cases
Gift splitting is commonly used in estate planning and wealth transfers among families and can also apply in specific corporate contexts:
- Family Gifts: Parents gifting to children can maximize exclusion amounts by splitting gifts on present interest assets, preserving more of their lifetime exemptions.
- Trust Contributions: When funding trusts that provide immediate withdrawal rights (Crummey powers), spouses can split gifts to minimize tax impact.
- Corporate Shares: Share transfers involving companies like Delta and Apple can benefit from gift splitting to reduce taxable gifts when transferring stock to heirs or trusts.
- Investment Portfolios: Combining gift splitting with contributions to low-cost funds found in best low-cost index funds allows efficient tax planning with diversified holdings.
Important Considerations
Gift splitting requires strict compliance with IRS rules, including filing deadlines and uniform election for all gifts made during the year. Failure to file Form 709 correctly can lead to lost benefits or unexpected tax liabilities. Additionally, gifts made under splitting may be subject to estate tax inclusion if the donor spouse dies within three years.
Consulting tax professionals and incorporating the election into your broader estate strategy is advisable, especially if you hold complex assets or jointly own investments such as those in dividend stocks or ETFs. Proper planning ensures you maximize tax advantages while adhering to filing requirements.
Final Words
Gift splitting lets married couples double their tax-free gift limits, maximizing transfers without immediate tax impact. Review your gifting plans with a tax advisor to ensure eligibility and optimize your use of this strategy.
Frequently Asked Questions
Gift splitting allows married U.S. citizen spouses to treat a gift made by one spouse to a third party as if both spouses made half the gift. This effectively doubles their combined annual gift tax exclusions and lifetime exemptions, helping them maximize tax-free transfers.
To qualify for gift splitting, both spouses must be U.S. citizens or residents, alive and married at the time of the gift, and the gift must be made to a third party. Divorce, remarriage in the same year, or gifts to the spouse directly disqualify the election.
Gift splitting lets couples combine their annual gift tax exclusions and lifetime exemptions, allowing larger tax-free gifts. For example, a $34,000 gift can be split as $17,000 from each spouse, often avoiding gift tax reporting or use of exemptions.
Yes, gift splitting only applies to present interests given to third parties. Gifts involving future interests or where the non-donor spouse has a general power of appointment are excluded. Also, gifts must be ascertainable and not directly benefit the non-donor spouse.
Both spouses must consent by checking 'Yes' on Line 1 and signing the consent section on Form 709, filed by the tax deadline. Each spouse files a separate Form 709 and consents to the splitting on the other's return.
If the donor dies within three years of making the split gift, the gift may be included in their estate under IRC §2035, potentially triggering estate tax and reducing the intended benefits of gift splitting.
Gifts from joint property may still require a gift splitting election if the amount exceeds the per-spouse annual exclusions. Proper documentation and election help ensure both spouses' exclusions are applied correctly.
