What is gift splitting and how does it work?

Gift splitting is a strategic provision within federal tax law that allows married couples to maximize their gift-giving potential without incurring gift tax liability. This mechanism primarily serves to optimize the use of the annual gift tax exclusion. By electing to split gifts, couples can effectively double the amount of assets they can transfer to individuals each year without triggering reporting requirements or reducing their lifetime exemption from gift and estate taxes. This election enables married individuals to transfer wealth more efficiently and support beneficiaries.

Defining Gift Splitting and Its Purpose

Gift splitting is an election available to married couples under federal tax law, allowing them to treat a gift made by one spouse to a third party as if it were made one-half by each spouse. This applies even if only one spouse actually provided the funds or assets for the gift.

The core benefit of this election lies in its ability to effectively double the annual gift tax exclusion for gifts made to any single recipient in a given year. For instance, if one spouse gives a substantial gift to an individual, gift splitting permits a portion of that gift to be attributed to the other spouse’s annual exclusion. This means that instead of just one individual’s annual exclusion being applied, two exclusions are utilized for the same gift.

The primary purpose is to allow married couples to transfer a larger amount of wealth tax-free to beneficiaries. This strategy can reduce the likelihood of triggering gift taxes or using up the couple’s lifetime gift tax exemption, which is a broader exclusion for gifts exceeding the annual limit.

Requirements for Gift Splitting

To properly elect gift splitting, several specific conditions must be met by the married couple. First, the individuals must be legally married at the time the gift is made. This marital status must be maintained throughout the entire calendar year in which the gift was given. If a divorce occurs after a gift is made but before the end of the calendar year, gift splitting is generally not permitted for that year’s gifts.

Both spouses must also be U.S. citizens or residents during the calendar year the gift is made. Another important condition is that neither spouse can remarry during the remainder of the calendar year if the gift was made before a divorce or death.

Consent is a crucial requirement for gift splitting. Both spouses must provide their consent to split all gifts made by either spouse to any third party during the calendar year while they were married. This consent is not optional for individual gifts; it applies to every gift made by either spouse during that year. For example, if one spouse makes a gift, the other spouse cannot make any other gifts to the same recipient during the year that are not also split.

Calculating the Impact on Annual Exclusions

Gift splitting significantly impacts how a married couple can utilize their annual gift tax exclusions. For 2025, the annual gift tax exclusion amount is $19,000 per recipient. This means an individual can give up to $19,000 to as many people as they wish in a year without needing to report the gift to the IRS or reducing their lifetime gift tax exemption.

When a married couple elects gift splitting, they effectively double this exclusion amount for each donee. Through gift splitting, a couple can collectively give up to $38,000 to a single recipient in 2025 without triggering any gift tax implications or using their lifetime exemption. For example, if one spouse gifts $38,000 to their child, by electing gift splitting, the gift is treated as if each spouse contributed $19,000. This allows the entire $38,000 to fall within the combined annual exclusions, even though only one spouse physically made the transfer. This mechanism applies even if one spouse made no direct gifts themselves during the year; their portion of the exclusion is effectively utilized by the gifting spouse.

While the focus of gift splitting is on maximizing the annual exclusion, it also interacts with the lifetime gift tax exemption. Any portion of a gift that exceeds the annual exclusion, even after gift splitting, will reduce the donor’s lifetime exemption. For 2025, the lifetime gift and estate tax exemption is $13.99 million per individual. Gift splitting can also help manage the use of this larger exemption, as it ensures that each spouse’s exemption is proportionally utilized for larger gifts.

Reporting Gift-Splitting

Electing gift splitting is a formal process that requires proper reporting to the Internal Revenue Service (IRS). This election is made by filing IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. This form serves as the official declaration of the gift and the election to split it between spouses.

The filing deadline for Form 709 is generally April 15th of the year following the calendar year in which the gift was made. For gifts made in 2025, the return would typically be due by April 15, 2026. If an extension for filing an individual income tax return (Form 1040) is granted, it automatically extends the deadline for Form 709 as well, usually until October 15th.

On Form 709, spouses indicate their consent to gift splitting in a specific section, often requiring signatures from both parties. Even if only one spouse made the gift, both must sign the return to signify their agreement to split all gifts for that tax year. The form requires specific information about the gifts, including the names of the donees, the dates the gifts were made, a description of the gifted property, and its fair market value.