how gift splitting works
gifts of money or property are subject to a gift tax if the donor exceeds the annual or lifetime gift exemption gift splitting is an easy way for married couples to maximize their annual gift tax exclusion amount the internal revenue service allows married couples who file jointly to double the amount of their gift through gift splitting here s how gift splitting works married couples combine their individual allowances as if each contributed half the amount of the gift the thresholds are applied to each person who is the recipient of a gift for all gifts over the annual threshold amount form 709 united states gift and generation skipping transfer tax return must be filed with the irs 1this means that a couple could give up to 36 000 each to any number of people in 2024 without any tax consequences anything over the allowed 18 000 per individual is still not taxable as long as it s under the lifetime gift tax limit of 13 61 million for 2024 2to qualify for gift splitting in the eyes of the irs both spouses must agree to the gift and specify the situation in which the gift was given when filing their tax returns 3 the gift giver is responsible for paying any tax and filing the gift tax return which means that recipients generally aren t required to report the gift as income 4for the 2024 tax year the annual gift exclusion limit for a calendar year is 36 000 for a couple which is twice as much as the 18 000 threshold for an individual special considerationsif a couple divorces prior to filing their taxes for the year the gift took place neither spouse can be remarried for gift splitting to qualify in addition neither spouse can benefit from the gift and it must be made to a third party 3gifts of any amount made to spouses or political organizations and payments of tuition and medical expenses on behalf of others are generally not taxable as gifts 5 for gifts used for medical or educational expenses the gifts must be paid directly to the hospital school or applicable provider in order for the tax exclusion limits to be inapplicable 6as with all complex tax matters it s a good idea to consult with a tax professional prior to making large gifts example of gift splittinghere s a hypothetical example to show how gift splitting works let s consider the circumstances of mallory and river their daughter and son in law found out that they are expecting a second child the house where they currently live is too small and they need to build an addition to the property to accommodate the needs of their growing family the mckays are thrilled by the prospect of becoming grandparents again and are eager to contribute to the cost of the addition they expect that the additional room will cost around 30 000 knowing they would be subject to gift taxes on the funds if they wrote a 30 000 check the mckays decide to gift split mallory writes one check for 15 000 and river writes another for the same amount or they could write one check from a joint account for the total amount and still use the gift splitting option this allows their daughter and son in law to complete the remodel without having to worry about taking out a loan since they are going to split the gift between the two of them the mckays can avoid paying the gift tax but must file form 709 with the irs 7 keep in mind that no taxes would be due if the amount is still under the lifetime gift tax amount now consider the same example but instead of a second baby the mckays find out that their daughter is pregnant with twins in this case they need to add two rooms and a bathroom to their house which means the cost will be closer to 34 000 if they split the gift again and this time mallory writes a check for 17 000 and river writes a check for 17 000 or a single check from a joint account for the full amount they each must file form 709 with the irs in any instance both individuals must consent to the gift 