Gifting Assets to a Non-US Spouse: Tax Insights for Expats

Updated on March 31, 2024

Gift taxes have special considerations for expats with nonresident spouses. Gifting can be a tax strategy, or a necessity of life. What do expats need to know?

In this edition of "Tax Questions From Real Expats," we're delving into the nuances of asset gifting to a non-US spouse. This is a topic that frequently emerges in the realm of international tax planning. Whether it stems from deliberate tax strategy or it's the byproduct from necessities of life events, understanding and complying with US tax regulations is crucial to sidestep potential financial penalties and additional costs.

What does the IRS consider a 'gift'?

Under US tax law, the act of gifting falls under a specific definition.

Generally asset transfers (i.e., money) can be categorized into sales, loans, or gifts. The IRS considers any transfer, where full value is not reciprocated, as a gift. So, anything given where something of equal value is not received. This could range from monetary gifts to shares of a company - which is the example we're going to be looking at.

For the recipient, such gifts aren't taxed as income. The donor is permitted to gift up to $16,000 annually to multiple recipients without inciting gift taxes or necessitating reporting. Additionally, there is a lifetime exemption of $12.06 million shields donors from gift taxes until this threshold is reached. If you exceed the $16,000 annual threshold, the givers has to file Form 709 to document these transfers, but typically taxes are only owed when the lifetime threshold is exceeded.

So to make it super simple, the only situation where you have no reporting requirement, is when the value of the gift is less than $16,000.

The Special Case of Spousal Gifting, and how it changes for expats.

The tax code introduces the "unlimited marital deduction" for gifts between US-resident spouses. This allows for unrestricted, tax-free transfers, exempt from both reporting and lifetime exclusion calculations. But, what is one of the spouses is not a US tax resident?

Like they always do, tax rules get more complicated when we step outside the border. When one spouse is a non-US resident, the rule for the "unlimited marital deduction" doesn't apply - there is a separate rule.

The annual exclusion for gifts to a nonresident spouse falls back to the general rule, however, instead of a $16,000 exemption you are allowed a $159,000 exemption. Anything above that applies against the $12.06 million lifetime estate exemption described before.

Simple Gift Tax Guidelines

So to wrap it up neatly, if you stay below the three thresholds below - you don't have any reporting requirements.

General Gift Tax Threshold: $16,000/year
Non-resident spouse: $159,000/year

Anything above these thresholds applies against the $12.06 million lifetime estate exemption and needs to be reported with Form 709.

Strategic Implications for Nonresident Spouse Gifting

For those with non-US resident spouses, adhering to these guidelines not only aids in tax planning but also minimizes the annual IRS reporting burden. Like everything that involves the IRS, it's important to do things right the first time to avoid unnecessary costs and complications.

Remember, if your tax situation has already gotten too complicated for you to handle, just reach out to us for help.