Permanent Resident Spouse and Gift Taxes

Your situation is much more complicated than you believe. You left out vital information that is required before reasonable answers can be given to your questions.

What state do you live in? Is it a joint account or a tenants in common account? Did you intend it to be a gift?

How did you take title?

Again, that depends on how you held title while you owned the house, and how the bank account is set up that the money goes into. Finally it depends on if your wife's equal ownership in the house (if she had equal ownership) was already considered a gift.

California. Joint account. It was not intended to be a gift.

Community Property with the Right of Survivorship

Gains went back into the same joint account. Intent was for my wife to have equal ownership.

Thanks for taking the time. I really appreciate it.

Ken

Holding something with someone in joint tenancy is considered for convenience and not a gift. If you die and the other person inherits your share due to the joint tenancy, it's considered a gift (inheritance) at that time.

Each spouse is considered to own half of communitiy property. So titling something as community property is considered a gift.

If the house was community property, it was a gift at that time, so it wasn't a gift when the house was sold because your wife already owned half at that time.

You also said that the account was not considered to be a gift but now you're saying you considered ownership of the account to be equal. It can't be both at the same time. If it's a gift, ownership becomes equal. And if you consider ownership to be equal, even though contribution wasn't equal, then it becomes a gift at that time.

Just to make sure I understand - even in a Community Property state my deposits into a joint account are not a gift at the time of the deposit? At the time of inheritance my share (because I am in a community property state) would be 50%?

I apologize for my lack of understanding, but starting at the beginning, my intent was for my wife to have an equal share of everything - I just didn't realize that was a gift. If my intent is/was for my wife to have equal ownership, does that mean that my deposits are gifts at the time of deposit rather than inheritance?

At the time of purchase I contributed 2/3 of the down payment. 1/2 of the 2/3 would be the gift?

1/2 of my share was under the exclusion limit of $143k at the time, was I supposed to report this gift? If so, is it ever too late to amend my return (2013)?

Again, I really appreciate all of this information. I was always searching for the meaning of a gift, and finally I have found it. The IRS knows it all! I hope that other people married to permanent residents will land on this page and realize these complexities exist much earlier than I have...

Just to make sure I understand - even in a Community Property state my deposits into a joint account are not a gift at the time of the deposit? At the time of inheritance would my share (because I am in a community property state) be 50%?

I apologize for my lack of understanding surrounding the gift concept, but starting at the beginning, my intent was for my wife to have an equal share of everything - I just didn't realize this was a gift. If my INTENT is/was for my wife to have equal ownership of everything from the start does my intent change anything? i.e., would that mean that my deposits are gifts at the time of deposit rather than inheritance and would they need to be reported annually?

At the time of purchase we used the joint account to fund the down payment. I am now thinking that 1/2 of the down payment was a gift to my spouse. If 1/2 of my share was under the exclusion limit of $143k at the time, was I supposed to report this gift? If so, is it ever too late to amend my return (2013)?

Again, I really appreciate all of this information. I was always searching for the meaning of a gift, and finally I have found it. The IRS knows it all! I hope that other people married to permanent residents will land on this page and realize these complexities exist much earlier than I have...

It's much more complicated than that. But in general if you and your wife put unequally put separate property money into a "joint" bank account (so not tenants in common and not community property) it's not considered a gift at that time.

If you want your wife to be an equal owner of property that is not community property, then to the extent she didn't contribute half, that is a gift.

Not half the 2/3 would be a gift but one-quarter of the 2/3 (or 1/6) would be a gift - that's what it would take to make you both half owners. And the annual exemption changes with inflation, so for 2022 it's $164,000.

There are a couple of other things you might want to know about. If you want to make gifts of more than the annual exemption, you can do part of it as a sale, and then forgive some in following years.

One really serious situation can occur when a non-citizen owns real estate, especially subject to a mortgage. There is very little estate tax exemption when that person dies. And under some circumstances there may not be a deduction for the mortgage. I've seen the IRS ask for more in estate tax on a property than the decedent's equity.

One way to deal with that is to have a foreign corporation own the property. Stock in a foreign corporation is not considered a US asset, even if it owns property in the US. So it is not subject to estate tax in the US. But it could be subject to estate tax in the country where the corporation is set up. So be careful if that might be an issue.

Much of this is moot since the original post stated that the spouse was a permanent resident of the US. "Green card" holders are subject to the same tax rules as citizens.

Ira Smilovitz, EA Leonia, NJ

I'm clearly not an expert, but there is a clear distinction between citizens, non-citizen residents, and non-citizen non-residents on IRS form 709.

Transfers Subject to the Gift Tax Gifts to your spouse

You must file a gift tax return if you made any gift to your spouse of a terminable interest that does not meet the exception described in Life estate with power of appointment, later, or if your spouse is not a U.S. citizen and the total gifts you made to your spouse during the year exceed $159,000.

I just learned something. Thank you.

Ira Smilovitz, EA Leonia, NJ

For most people, gifting enough in a single year to trigger the gift tax for that year is a paperwork hassle (you have to figure out the gift amount out and file Form 709). It is rarely a tax problem because the tax due is usually zero. With a $12M/person lifetime gift+estate exclusion, you could gift your non-citizen wife $2M this year, use up $2M of the lifetime gift+estate exclusion, and still have a $10M+ exclusion left over for your estate when you die.

I thought unlimited gifts to spouses were permitted with no gift tax consequences.

Only when the donee spouse is a US citizen, or the gift is made to a Qualified Domestic Trust.

Thanks. But there is this:

Generally, spouses who are both US citizens may transfer unlimited amounts to each other without incurring any gift tax, as any assets in excess of the couple’s combined estate tax exemption ($24.12 million in

2022) will be taxed at the death of the surviving spouse and transferring assets to the survivor only defers the tax that the IRS will eventually collect.

Gifts to a non-US citizen spouse, however, are limited. Since a non-US citizen spouse may not be subject to the US estate tax, one cannot transfer unlimited assets to a non-US citizen spouse since that transferred wealth could potentially avoid US estate taxation upon the non-US citizen spouse’s death. Thus, when the recipient spouse is not a US citizen, and regardless of whether the non-US citizen spouse is a resident or nonresident of the United States, the amount of tax-free gifts is limited to an annual exclusion amount. *****For calendar year

2022, the first $164,000 of gifts to a spouse who is a non-US citizen are not included in the total amount of taxable gifts.*****

I didn't take the time to find the basis for this statement in the code, perhaps someone can post that.

The OP says "We funded the account with shared funds. We have both deposited money into the joint account over many years, but I deposited more than my spouse - for the example let's say 2/3 to 1/3. "

I would like to double-check that what deposited in the account "2/3 to 1/3" is not their community income. Because if the "2/3" is his earnings and "1/3" is her earnings, and they are their community property, then his earnings are really 50/50 his v hers and so are her earnings, thus even if 2/3 comes from his employer & 1/3 from hers, their deposits to the account really belong to them 50/50.

MK

Good point - it's not a gift to the extent it was community property when earned.

The big problem will come if wife dies first. As a noncitizen her estate tax exemption will be minimal. And unless she discloses her world-wide assets on the 706, the IRS won't allow a deduction for any mortgage on the property. If the tax is 40% and the equity is 35%, her estate will owe more on the house than he equity is.