Taxpayers misunderstand gift splitting rules on community property

“Bit of a multi-factor question.... We live in CA and Partner A has 300k in student loans earning $X annually. Partner B has 0 in student loans and earns $3X annually. We need to file separately because filing jointly significantly increases our income based student loan payment going towards public service loan forgiveness. Question is: If we file separately in a community property state does form 8958 always need to be split 50/50 so each spouse is allocated half the earnings; or can we allocat”

“I don't agree with some of the previous answers. In this situation, you are the only donor spouse. The Form 709 instructions (p. 7) regarding spousal consent to split gifts state : "If both spouses are required to file gift tax returns, then each spouse should execute a Notice of Consent to be attached to the donor spouse's return." In this situation where only one spouse made a gift but both spouses are required to file, it's a bit unclear if the tax return of each spouse”

“Wife made no gifts. [re: Form 709 Gift Splitting - Does the donor sign the spouse’s Notice of Consent?]”

“You're right on track with that, the donor just signs their own Form 709 with your consent attached, no extra steps needed. [re: Form 709 Gift Splitting - Does the donor sign the spouse’s Notice of Consent?]”

“For 2025, say I made a $100K gift to my parents (bank to bank transfer,). My spouse didn’t make any gifts during the year. We are electing to split the gift. Here’s how I understand the paperwork: Husband (donor): - Files Form 709 - Attaches one Notice of Consent signed & dated by spouse - Signs only his own Form 709 - Does NOT sign any Notice of Consent Wife (consenting spouse): - Files Form 709 - Signs only her own Form 709 - Does NOT attach a Notice of Consent - Husband does NOT sign anyt”

“This is not universally true at all. If you live in one of the 9 community property states and you make a gift of community property, then yes, it is a gift that is half from you and half from your wife. If you are not in a community property state or if you are in a community property state, but the gift is of separate property, any gift you make is made only by you. There’s nothing that assumes or deems it half from your wife. You can file gift tax returns and elect to split gift, but it’s not”

“Assuming you both live in California, you are subject to community property rules. Filing MFS means that both of your incomes are split 50-50 between the two of you. There's no such thing as her income and your income - with a few exceptions like IRA distributions, they are equal. And if these are genuine gifts, then your strategy works. But that means you don't get the stock proceeds back. Source: I'm a California tax pro. [re: Transferring Stock to minimize Taxes]”

“Assuming you both live in California, you are subject to community property rules. Filing MFS means that both of your incomes are split 50-50 between the two of you. There's no such thing as her income and your income - with a few exceptions like IRA distributions, they are equal. And if these are genuine gifts, then your strategy works. But that means you don't get the stock proceeds back. Source: I'm a California tax pro. [re: Transferring Stock to minimize Taxes]”

“Electing gift splitting under IRC 2513 requires filing at least one form 709 to make the election to split gifts. Which would completely defeat the purpose of making multiple gifts under the threshold to avoid the filing obligation. Terrible advice.”

“Gift from you to her, from you to her spouse, from your spouse to her spouse, from your spouse to her. This does not work because of step transaction doctrine. All gifts will be imputed to original grantor. The gifts must be joint property to split this way.”

“That depends on state law on when the community was broken. In some states, the community can be broken before a divorce is final - what exactly breaks the community varies by state. In some, it is only a final divorce, in others, filing for divorce and/or formally separating and living apart can break it. OP said they were separated for the last 5 months of the year. It is possible that income earned prior to separation should be reported 50/50, while income earned post separation would be repo”

“No gift tax considerations. (From a practical standpoint). The annual limit is per gifted per recipient so in this case they will both gift you $12,500 and it wouldn’t matter until they hit the lifetime limit.”

Or give half now and half on January 1.

If you are in a community property state that is perfect.

“As a starting point, I’m not basing my advice on the IRS website. But that aside, I assume you’re talking about the FAQ that says what if my spouse and I want to give away property we own together. While I tend to agree that it likely indicates the current position they would take, it’s just written way too colloquially (as an FAQ tends to be), for me to think it would actually hold in all situations. It works great for something like real property where both spouses are giving their whole inter”

“The IRS states on their website that if a gift is made from joint spousal property then each spouse is allowed the annual exclusion on the gift. This can only mean that the IRS will consider such a gift to be made 50% from each spouse.”

“I think it depends on how strict/accurate you want to be. The people my grandparents worked with suggested/required separate accounts and separate checks. This was in Florida. It’s always possible that we have a very strict IRS at some point and the laws change and there is some look back. Is that unlikely, sure. But why take the chance. There is a lot of revenue that is going to need to come from somewhere with all the budget deficits.”

This is so helpful, thank you!

“Hi all, hoping someone can help me make sense of this. My parents are planning to give my husband and me $75,000 to put toward a house. The money is in one joint bank account owned by both of my parents. My thought was that they could write four checks for $18,750 each, with my mom giving one to me and one to my husband, and my dad doing the same. Since each gift would be under the $19,000 annual exclusion, would they still need to file Form 709? The part I can’t quite figure out is if the joint”

No tax on gifts? Really?

“None of these are correct. See my comment for the tax treatment of part gift part sale transactions (which is what this is - there’s no choice to be made).”

“No, there’s no gain under the facts as you’ve laid them out. His basis is $113k and his amount realized is $113k - zero gain. Your basis will also be $113k for the reasons I’ve laid out in other comments.”

“Nope. See 1.1001-1(e) - this is a part gift part sale and the amount realized is the amount OP is actually paying. Since that is equal to Dad’s basis, there’s no gain and under 1.1015-4 OP takes the greater of the amount actually paid or Dad’s basis, but that’s equal here.”

“I do not believe that gift taxes apply to you. In any case, there is no actual tax for gifting unless you have exceeded your lifetime exclusion for gifting (which is currently around 15 million dollars per person). The worst case scenario is that you would have to file a gift tax return, which us used for tracking your lifetime exclusion. That is Form 709.”

Thanks for answering. Can we split tax return between me and my spouse ?

“So, essentially, if the lifetime exclusion increases (600k —>15m), someone who used all 600k of their lifetime exclusion in a previous year would only owe tax if their estate exceed 14.4m? (Ignore the 3 year rule, annual exclusion, etc)”

“IRC § 529 doesn’t actually answer the question of who pays the gift tax, which is why there’s seemingly room for ambiguity on this question (and there’s not a single treasury reg on 529s for all 30 years they’ve existed). But the position that the beneficiary owes the tax, rather than the owner of the account who actually made the change, does not functionally work - and this scenario (which tries to torture gift tax from an estate that by definition can’t pay gift tax) is a good example of why”

“Thank you! Yes, it is over $38k (total basis in the home was $220k and FMV is $186k). I did see in the 709 instructions that the gift is considered as though it were made 50% by each spouse. This means each one will report half of the basis and FMV of the gift on their respective 709, and Part III (spouse's consent) will be left blank. Is that right? Very silly question but want to do it properly!”

“No election. Each spouse reports their half of the gift. Gift splitting is when only one spouse gifts their sole property but wants to treat as if joint property.”

“No gift splitting election required because each spouse legally had and gave a 50% interest in the community property, so each spouse has to file a 709 regardless (assuming 50% of the value of the property is over the annual exclusion or the transfer doesn’t qualify for the annual exclusion). There’s no harm in making the election to gift split (the end result will be exactly the same under the facts), but it may confuse the client if they actually review the forms because of the mechanics of ho”