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I thought the IRS gifting rules were pretty straight forward and I understood them. Any individual can give $19K (in 2025) to anyone else w neither a gift tax or reporting requirement. Seems pretty clear.
Then I dug a little deeper online which was maybe a mistake and came up w some issues.
One was the IRS reference to “gift splitting” by spouses where one spouse can use the other spouses gift exemption to gift in excess of the $19K. So, if spouse #1 wants to gift $25K to a child, he can use use his $19K exemption and $6K of his spouse’s exemption assuming spouse had room remaining in their $19K exemption. But if you do this, it requires filing the IRS Form Gift Tax 709.
My understanding is spouses can freely gift to one another w no reporting requirement and any gift made from a joint account is considered to have equally come from each party so why would anyone want to go through the reporting hassle of “gift splitting”? Is this only applicable where one spouse wants to make a gift to another party from an account that he does not jointly hold with his spouse? If so, wouldn’t the spouses want to just transfer $$$ to a jointly held account and gift from there to avoid the 709 reporting? What am I missing?
Also, is there any requirement to make individual $19K distributions from a joint account or is one $38K distribution ok under the assumption that $19K came from 2 joint accountholders thus no gift tax and no reporting requirement?
Finally, are there any “innovative” ways to exceed the reporting limits? I read one scenario where a gift from a parent well in excess of the yearly exemption was structured as a loan with the yearly repayments structured to coincide with the gift tax exemption and would then be forgiven. Does that pass the smell test? The glitch I see is if the “loan” is to assist in a mortgage application, would this not adversely affect the recipient’s debt ratios and credit worthiness or does documenting the downstream payment forgiveness make everyone happy?
I could also be overthinking this whole thing and I should just make whatever gift I/we want and fill out the IRS 709. I’m just trying to avoid unnecessary administrative filings while staying administratively pure with Government.
I’m giving my Roth proceeds to my boys monthly. They get $5000 per year to put in their own Roth accounts. It’s a way they can have an inheritance while I’m still above the grass.
But I realize that’s not part of what you were asking.
I’m with you! We’ve been making yearly gifts to the kids that coincidentally coincide with the Roth contribution limits. 😁
One thing I hadn’t considered until I read the form 709 instructions is that while gifts to charity don’t trigger filling out form 709, once you’re required to fill-out form 709, you need to list all of your charitable contributions, which sounded like kind of a pain to me, so we’ve been keeping below the limit for that reason.
Hi Mark,
I had over a 40+ year career as a CPA that included preparing form 709 United States Gift (and Generation-Skipping Transfer) Tax Returns. Here are some thoughts for you to consider-
Gift tax returns can appear to be simple and for a one time gift above the annual exclusion they just might be. Example – gifting a lot of cash to a child to buy a house.
Staying under the annual exclusion amount to eliminate the need to file form 709 works best if you can do it and still make the gifts you want to make. If both husband and wife are going to make large gifts from a joint account I recommend separate checks with a descriptive memo such as 2025 gift from Dad, 2025 gift from Mom. Better yet if you have separate accounts make the gift from the separate account. Eliminate possible arguments with the IRS where possible.
The estate and gift tax system we operate under is unified. After you exceed the annual gift exclusion the excess reduces the (2025) $13.99 million lifetime exemption (as indexed for inflation) each individual has during life and you are then taxed currently at a 40% rate if you make taxable gifts above the current lifetime exclusion. This typically means a lot of compliance work and no actual tax paid. This may not be true for high net worth individuals which I am not addressing here. Current gift tax returns form 709 build upon the last gift tax return. I recommend a permanent file for all gift tax returns filed and supporting documentation and let your future executor know it exists and where it can be found.
Gifts subject to the annual exclusion must be present value gifts, think cash and marketable securities. Non present value gifts, think gifts to trusts, have a different set of rules but may mean no annual gift exclusions.
If you are making an above annual present value gift to a grandchild there is additional work needed on the 709 as you have made a Generation-Skipping Transfer (GST). GST requires a separate exemption amount and additional taxes if you use up your GST exemption. I have only hit the highlights on GST here, consider this paragraph awareness.
Finally, your question about why to elect to split gifts.
I generally do not like to split gifts. The 709 instructions says it best –
If you and your spouse both consent, all gifts (including gifts of property held with your spouse as joint tenants or tenants by the entirety) either of you make to third parties during the calendar year will be considered as made one-half by each of you
I highlighted and underlined all. So not just taxable gifts to a family member but all gifts that both you and your wife made to everyone (charitable gifts excluded), think Christmas gifts, birthday gifts and buying your buddy a beer.
That said sometimes a high net worth individual owns a closely held business and their spouse does not have a ownership interest and the owner wants to gift a large fractional interest and also split the gift for gift and estate tax purposes. Thus sometimes circumstances require gift splitting for desired tax results.