2018 Annual Exclusion

[Jasonwu617]

Hello

Base on my knowledge, everyone has $15000 Annual gift exclusion. A married couple will have $30000 exclusion. Unfortunately, my wife passed away in 2018, does it mean from date of her death my family Annual Exclusion will drop to $15000 ? Can anyone help me please ?

Thanks

[IsabellaG]

I am sorry for your loss. Yes, it's true that for 2019, your annual gift tax exclusion  will be $15,000, not $30,000 as it was when your wife was alive. But that doesn't mean that you'll have to start paying Gift Tax.

If your gifts to any one individual exceed $15,000 for the year, you will need to file a Gift Tax Return ( Form 709), but you won't actually start paying Gift Tax unless your gifts exceed both the annual exclusion amounts and the lifetime limit amount. You can give a total of up to $11.180 million in your lifetime before you start owing Gift Tax. And certain gifts, such as for Educational Expenses and Medical Expenses are not subject to Gift Tax.

TurboTax has a great discussion of the details of the Gift Tax. It's an often misunderstood tax that few individuals wind up paying.

[Jasonwu617]

Thanks for your replying, IsabellaG. I have 2 questions regard your response. 1) my wife passed away in March of 2018, base on your explanation, my family will have $30000 Annual Exclusion up to March of 2018. Starting April, I can only use my Annual Exclusion ($15000) for the remaining of the year 2018 OR my wife 2018 Annual Exclusion threshold remains active for the rest of the year 2018 ?

2) if I give one individual exceed $15000, I will have to file 2 separate tax return, reporting “not gift transaction” on regular tax returns (i.e 1040), reporting ONLY “gift transaction” on F709 right ? By the way, Can I Efile F709 ?

Thank You

[IsabellaG]

1) Here are a few links that discuss this issue, gift splitting with a deceased spouse. This one talks about mistakes commonly made with spousal gift splitting. It says, "The executor for a deceased spouse may sign the consent to split a gift made prior to the death of the deceased spouse. Treas. Reg. § 25.2513-2(c).  However, a donor may not split the gift with his or her deceased spouse if the gift is made after the spouse’s death. Rev. Rul. 55-506, 1955-2 C.B. 609." This similar to what you are saying, but slightly different.

This is the way I read it: If you give any individual more than $15000 for the year (Jan-Dec) you need to file a Form 709. Your wife can split any gifts between the two of you for the period that you are alive, and you do that on the return. Her executor (maybe that's you) would need to sign the agreement to do that. That would show 1/2 of the gifts for that period as coming from you.

If, after March, you have more gifts, that amount is added to your share of the Jan-March gifts. $15,000 can be excluded, and the rest will be added to your lifetime limit.

2) Yes, you will file 2 separate tax returns. One is your regular income tax return, Form 1040. The second is the United States Gift (and Generation-Skipping Transfer) Tax Return, Form 709. You can't e-file Form 709, you can only mail it.

[Jasonwu617]

Thanks again, IsabellaG. This is how I read your comments of “splitting gift between me and my deceased wife”. My wife passed way in Mar of 2018 and my family gifted $15500 in 2018. $2500 was gifted between Jan to Mar, the remaining $13000 was gifted between Apr to Dec.

$2500 can be split between me and my deceased wife, so I ONLY response for $1250 (2500/2), the remaining $13000 will be ALL on me, base on this calculation my total gift amount ($14250) LESS than Annual Exclusion $15K in 2018, so NO Form 709 is REQUIRE for Both me & my deceased wife right ?

Thanks

[IsabellaG]

You have the calculation right, but according to the IRS "You must file a gift tax return to split gifts with your spouse (regardless of their amount)." See this link to the IRS Instructions for Form 709. The quote is down the page, under Who Must File. 

[IsabellaG]

You have the calculation right, but according to the IRS "You must file a gift tax return to split gifts with your spouse (regardless of their amount)." See this link to the IRS Instructions for Form 709. The quote is down the page, under Who Must File. 

[Jasonwu617]

Thanks for your reminder. It seems to me I can give UNLIMITED amount of money to my wife (if she is a U.S person), but I ONLY allow to give up to 15K to an individual during 2018 (without filing F709), if I give more than 15K annually, I will somehow use my deceased wife quota, it is called “Split gifts with my spouse”, as long as I touch her quota I will HAVE to File F709, am I right ?

Best Regards,

[IsabellaG]

Yes, I believe that we are saying the same thing!

[Jasonwu617]

Many thanks to you, IsabellaG. Thanks for your clarification regard “gifting to others”, now I have one question regard “Withdraw money from Joint account”. I have one JOINT bank account between me and my deceased wife, she has “NO Will” at the time of her death. After her death, if I Withdraw/Transfer $35K OUT of this JOINT Account, will I REQUIRE to File F709 (or any other Forms) and report such transactions to IRS ?

Thank you so much

[IsabellaG]

No, not if you mean that you are transferring funds from your joint account to an account owned solely by you. 

[Jasonwu617]

Thanks IsabellaG. Please allow me clarify my question a little bit. If I have one JOINT bank account with my deceased wife, she has “NO Will” at the time of her death. After her death, if I Withdraw/Transfer $35K OUT of this JOINT Account and Deposit into my Sole Account, will I REQUIRE to File F709 (or any other Forms) and report such transactions to IRS ?

More importantly, if I transfer $35k from this JOINT account into Third Person’s (For Example: my son) bank account, then I will HAVE to File F709, because it is over Annual Exclusion right ?

Thanks for your help again

[IsabellaG]

Yes, that is correct!

[Jasonwu617]

Thanks IsabellaG. There are 2 questions above, I am not sure you answer both.

1) Will I REQUIRE to File F709 if I transfer $35K from the JOINT account (me and my deceased wife) to my sole account ?


2) Will I REQUIRE to File F709 if I transfer $35K from above JOINT account to the third person’s (my son) bank account ?


Thanks again

[IsabellaG]

1) No.

2) Yes.