Gift Splitting for Tax Purposes

Gift splitting is a tax strategy available to married couples in the U.S. that enables them to combine their individual annual gift tax exclusions, effectively doubling the amount they can gift to one recipient tax-free each year. The IRS sets an annual gift tax exclusion amount, which for 2024 is $17,000 per person per recipient. Without gift splitting, if one spouse gives more than this amount to an individual, it may trigger gift tax reporting obligations or reduce their lifetime estate and gift tax exemption.

With gift splitting, a couple elects to treat a gift made by one spouse as though each spouse made half of it. This transfers the gift tax exclusion benefit to both spouses, raising the tax-free gift amount to $34,000 per recipient for the couple. The key for the couple is to file jointly this election on their federal gift tax returns using IRS Form 709.

How Gift Splitting Works

1. Marital Requirement: Gift splitting applies only to legally married couples.
2. Gift Made by One Spouse: One spouse makes the gift to someone other than the spouse.
3. Election on Tax Returns: Both spouses must file IRS Form 709 to elect gift splitting for the year the gift was made.
4. Splitting the Gift: The gift is reported as half from each spouse, allowing the use of both exclusions.
5. Tax Implications: If the combined gift still exceeds the total exclusions, the excess reduces the couple’s lifetime exemption but typically does not result in immediate tax.

Eligibility and Limitations

Only gifts made to third parties—not gifts between spouses—qualify for gift splitting. Both spouses must agree and consent to the election. Additionally, gift splitting is per recipient, so it applies individually to each gift made to a particular person.

Real-World Examples

• Example 1: Sarah gives $30,000 to their niece. By electing gift splitting on their tax returns, the gift counts as $15,000 from Sarah and $15,000 from her husband John. Since each amount is under their $17,000 exclusion, they avoid gift tax and gift tax return requirements.
• Example 2: For a $100,000 gift, the combined exclusion of $34,000 reduces the taxable gift to $66,000. This amount reduces the married couple’s lifetime exemption but does not automatically trigger gift tax.

Tips for Using Gift Splitting

• Plan gifts annually to maximize tax exclusions for both spouses.
• File IRS Form 709 timely for each year when splitting gifts.
• Stay updated on annual gift tax exclusion limits, which adjust for inflation.
• Utilize gift splitting to reduce reliance on lifetime tax exemptions.
• Check local state tax laws, as some states have their own gift tax regulations.

Common Misconceptions

• Gift splitting isn’t automatic; it requires joint election on tax returns.
• It cannot be applied to gifts made directly between spouses, as such gifts are generally unlimited and non-taxable.
• Each gift recipient can have gifts split individually — it’s not a combined total across recipients.
• Both spouses must file IRS Form 709 to validate the election, even if no gift tax is due.

Additional Resources

For more detailed guidance on filing gift tax returns and elections, see our article on How to File a Gift Tax Return and the Form 709 glossary entry.

Summary Table

References

• IRS, Topic No. 502 – Gift Taxes: https://www.irs.gov/taxtopics/tc502
• Investopedia, Gift Splitting: https://www.investopedia.com/terms/g/gift-splitting.asp
• NerdWallet, Gift Splitting Tax Rules: https://www.nerdwallet.com/article/taxes/gift-splitting-tax

Gift splitting is a valuable tool for married couples seeking to transfer wealth more efficiently and minimize gift tax exposure. Proper filing and planning can significantly increase the tax-free gift amount while preserving estate planning benefits.