Are Gifts Made to Your Spouse Taxable? It Depends

The federal gift tax applies to spouses only under a few circumstances

A woman holding a pile of gifts

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Are gifts you make to your spouse subject to the federal gift tax? Like a lot of questions regarding taxation, the answer is, "It depends." A gift to your spouse might be taxable if she isn't a U.S. citizen, depending upon how generous you are, and some more complicated gifts to a citizen spouse are taxable as well.

Gifts to Citizen Spouses vs. Non-Citizen Spouses

The unlimited marital deduction allows you to give any amount of money or property to your spouse, either during your lifetime or upon your death, without incurring either a federal or a state gift tax. But this is contingent upon her being a U.S. citizen.

Otherwise, there's a ceiling to how much you can give, the annual exclusion from gift taxes for gifts specifically made to non-citizen spouses. This annual exclusion is $155,000 in 2019, up from $152,000 in 2018.

"Annual" is the key word here. You can give this much per year without incurring a gift tax, and that can add up considerably over a lifetime, particularly because the exclusion is indexed for inflation. It creeps upward a little periodically, which is why it's worth more in 2019 than it was in 2018.

Gifts of more than $15,000 made to non-citizen spouses—in other words, those that fall between $15,001 and $155,000—must also be able to have qualified for the unlimited marital deduction if your spouse were a U.S. citizen.

Gifts of Present Interest vs. Gifts of Future Interest

A gift to your spouse qualifies for the unlimited marital deduction if she has a "present interest" in the gifted property. This means you must give the property over to her entirely for her use, enjoyment, and benefit, free from any strings attached. She takes sole title to the gift if it's real or tangible property. 

Contrast this with a "future interest" gift. A future interest gift is one that your spouse won't have full use and enjoyment of until some future point in time. A gift of a future interest is subject to the gift tax if you give it to your non-citizen spouse, although this rule doesn't apply to spouses who are citizens...provided that it's not also a "terminable interest" gift.

A terminal interest gift is one that can end at some future point in time due to a contingency. You must pay a gift tax on a gift to your citizen spouse if it's both a future interest gift and a terminable interest gift that qualifies as a life estate under the power of appointment. This basically means that someone else can claim ownership of the gift after his interest expires.

Consult with a tax professional if you're considering giving a gift of terminable or future interest. The rules for these exchanges are exceptionally complicated so you'll want professional advice.

NOTE: State and local laws change frequently, and the above information may not reflect the most recent changes. Please consult with an accountant or an attorney for current tax or legal advice. The information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.