Legal Definitions - gift-splitting election

A gift-splitting election is a choice that a married couple can make on their federal gift tax return to treat a gift made by one spouse to a third party as if each spouse had given half of the gift. This election allows the couple to combine their individual annual gift tax exclusions, effectively doubling the amount they can give to a single recipient in a year without incurring gift tax or using up their lifetime gift tax exemption.

Here are some examples to illustrate how a gift-splitting election works:

• Example 1: Funding a Child's Home Purchase

  Sarah wants to help her son, Michael, with a down payment on his first home. She plans to give him $36,000. Individually, Sarah can give up to $18,000 (the annual gift tax exclusion for 2024) to Michael without it being considered a taxable gift. If she gives him $36,000, the extra $18,000 would typically count against her lifetime gift tax exemption. However, if Sarah and her husband, Tom, make a gift-splitting election on their tax return, they can treat the $36,000 gift as if Sarah gave $18,000 and Tom gave $18,000. Since both amounts are within each spouse's individual annual exclusion, the entire $36,000 gift to Michael is excluded from gift tax, and neither Sarah nor Tom needs to use any of their lifetime exemption.

• Example 2: Gifting Shares of Stock to a Grandchild

  David wants to gift shares of stock valued at $30,000 to his granddaughter, Emily, to help her start an investment portfolio. David's individual annual gift tax exclusion is $18,000. If he makes the gift alone, $12,000 ($30,000 - $18,000) would be a taxable gift. However, David is married to Maria. By making a gift-splitting election, they can report the $30,000 gift as if David gave $15,000 and Maria gave $15,000. Both amounts fall within their respective $18,000 annual exclusions. This means the entire $30,000 gift to Emily is tax-free, and they avoid using any of their lifetime gift tax exemptions.

• Example 3: Contributing to a Niece's College Fund

  Aunt Carol wants to contribute $25,000 to her niece Maya's 529 college savings plan. Carol's individual annual gift tax exclusion is $18,000. If she makes the contribution by herself, $7,000 ($25,000 - $18,000) would be a taxable gift. Carol is married to Mark. If Carol and Mark choose to make a gift-splitting election, they can treat the $25,000 contribution as if Carol gave $12,500 and Mark gave $12,500. Since both $12,500 amounts are below the $18,000 annual exclusion, the entire $25,000 contribution to Maya's college fund is excluded from gift tax, maximizing the benefit for Maya without any tax implications for Carol and Mark.