How to Give Tax Free Gifts to a Spouse
If you wish to make a gift to your spouse, there are tax issues to consider. You cannot deduct spousal gifts from your taxable income. Nevertheless, you will not be subject to the federal gift tax for gifts to your current spouse in any amount, subject to one exception. It is important to know what type of transaction qualifies as a "gift" under the Internal Revenue Code, and how to proceed if the gift tax is triggered.
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Instructions
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Make sure that you are legally married to your spouse at the time the gift is given. You may donate to a common law partner or ex-spouse, but the gift will be subject to the IRS tax-free limit of $13,000 per year (in 2009). Any amount above this threshold will be taxed.
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Determine if the transfer to your spouse constitutes a gift for tax purposes. No transfer will be considered a gift unless you have "donor intent," meaning that your motivation is generosity, charity, love or admiration. The transfer of a valuable asset for less than its market value is also considered a gift (measured by the size of the discount).
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Make sure that your gift does not fall within the non-citizen exception to tax-free spousal gifts. If your spouse is not a U.S. citizen, then your tax-free limit will be $133,000 per year (in 2009).
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Draft a written document describing the transfer, sign it, and have your spouse sign it. This document should clearly identify the transfer as a gift. It is not a contract and cannot be enforced against you if you change your mind before completing the transfer.
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Transfer the money or property that is the subject of the gift. If you are transferring property, such as real estate or an automobile, make sure to have it registered in your spouse's name. If you are transferring property at a discount, draw up a sale and purchase agreement as well, and make sure it includes the signatures of both you and your spouse.
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File Form 709 by April 15 of the year following the year you made the gift if the tax-free gift limit applies to your gift and you exceed it. Form 709 should be mailed to the Internal Revenue Service at Cincinnati, OH 45999 (the FedEx address is Internal Revenue Service, 201 W. Rivercenter Blvd, Covington, KY 41011).
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Tips & Warnings
Your gift to your spouse will not be considered income to your spouse by the IRS. Consequently, your spouse need not report the gift on Form 1040.
If your primary purpose in transferring property to your spouse is to evade creditors, you may be sued for fraudulent transfer by your creditors. Even if you can establish genuine donor intent, your creditors may still be able to have the gift revoked.
