How does the IRS handle gift tax exclusions when a donor gives a gift to both members of a married couple?
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When a donor gives a gift to both members of a married couple, the IRS applies the gift tax annual exclusion to each spouse separately. Here’s how the rules work, with reference to the relevant legal authorities and IRS guidance:
1. Annual Exclusion Per Donee
- The gift tax annual exclusion is available for each donee (recipient) per year. For 2024, the annual exclusion is $18,000 per donee.
- If a donor gives a gift to a married couple, each spouse is considered a separate donee. Therefore, the donor can exclude up to $18,000 for the gift to one spouse and up to $18,000 for the gift to the other spouse, for a total of $36,000 in 2024 without incurring gift tax or needing to file a gift tax return, provided the gifts are of present interests.
2. Present vs. Future Interests
- The annual exclusion only applies to gifts of present interests. A present interest is one where the donee has an immediate, unrestricted right to use, possess, or enjoy the property or its income.
- If the gift is of a future interest (e.g., a trust where the beneficiary cannot access the property until a future date), the annual exclusion does not apply, and the entire value of the gift is a taxable gift.
3. Example Calculation
Suppose a donor gives $20,000 to each spouse in a married couple in 2024:- The first $18,000 of each gift is excluded under the annual exclusion.- The remaining $2,000 to each spouse is a taxable gift, totaling $4,000 in taxable gifts.- The donor must file a gift tax return (Form 709) because the gifts to each donee exceed the annual exclusion, but no gift tax will be due unless the donor has exhausted their lifetime exclusion.
4. Gift Splitting (Not Applicable Here)
- Gift splitting is a separate concept that applies when a married couple wants to treat a gift made by one spouse as having been made one-half by each spouse, thereby doubling the exclusion for gifts to third parties. This is not relevant when the donor is not married to the recipients; it is only for married donors.
- In the case of a donor giving to a married couple, each spouse is a separate donee, and the annual exclusion applies to each.
5. Reporting Requirements
- If the total gifts to either spouse exceed the annual exclusion, the donor must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if no tax is due.
6. Special Note for Non-Citizen Spouses
- If one or both spouses are not U.S. citizens, the annual exclusion for gifts to a non-citizen spouse is higher ($185,000 in 2024), but this only applies to gifts to a spouse, not to gifts from a third party.
7. Summary Table (for illustration):
8. Conclusion
When a donor gives a gift to both members of a married couple, each spouse is treated as a separate donee for gift tax purposes, and the annual exclusion applies to each. The donor can give up to $18,000 to each spouse in 2024 without incurring gift tax or filing a return, provided the gifts are of present interests.
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