How does the annual gift tax exclusion apply if both spouses give $20,000 each to their son, and is Form 709 necessary?
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If both spouses each give $20,000 to their son in 2025, the application of the annual gift tax exclusion and the filing requirements for Form 709 depend on whether the gifts are considered separately or if the spouses elect to split gifts.
1. Annual Gift Tax Exclusion for 2025
- For 2025, the annual gift tax exclusion is $19,000 per donor, per donee.
- This means each individual can give up to $19,000 to any one person in 2025 without incurring gift tax or having to use any of their lifetime exclusion.
2. Scenario: Each Spouse Gives $20,000 to Their Son
- Each spouse gives $20,000 to their son.
- For each spouse, the first $19,000 of the gift to the son is excluded under the annual exclusion.
- The excess over the exclusion is $1,000 per spouse ($20,000 - $19,000).
3. Gift Splitting Election
- If the gifts are made from separate property (not community property or joint property), each spouse is treated as making a separate $20,000 gift.
- If the gifts are made from joint or community property, each spouse is already treated as making a $10,000 gift, but in your scenario, each spouse is making a $20,000 gift from their own funds.
- Gift splitting allows married couples to elect to treat all gifts made by either spouse to a third party as made one-half by each spouse.
- If gift splitting is elected, the total gifts to the son ($40,000) are treated as $20,000 from each spouse, and each spouse applies their $19,000 exclusion, resulting in $1,000 of taxable gifts per spouse.
4. Form 709 Filing Requirement
- Form 709 is required if a donor gives more than the annual exclusion amount to any one donee in a calendar year, or if gift splitting is elected.
- In this scenario, each spouse gave $20,000 to their son, which exceeds the $19,000 exclusion.
- Therefore, each spouse must file a separate Form 709 to report the $1,000 taxable gift (the amount over the exclusion).
- If gift splitting is elected, both spouses must consent to the election, and both must file Form 709, even if the split results in no taxable gift for one spouse.
5. Summary Table
6. Key Points
- The annual exclusion is per donor, per donee.
- Any amount over the exclusion is a taxable gift and must be reported on Form 709.
- Gift splitting does not eliminate the need to file Form 709; it simply allows the gifts to be split for exclusion purposes.
- Each spouse must file Form 709 if their gifts to any one donee exceed the annual exclusion, or if gift splitting is elected.
7. Conclusion
If both spouses give $20,000 each to their son in 2025, each exceeds the $19,000 annual exclusion by $1,000. Each spouse must file Form 709 to report the taxable gift. If gift splitting is elected, both must still file Form 709 and consent to the election.
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