The Twice Given Gift

In most states courts have held that engagement rings have to be returned if the wedding doesn't take place. That means that the gift of the right isn't complete until after the wedding takes place. Until a gift isn't complete, no gift is considered "made" so no gift tax return is required. By the time the gift becomes complete the couple are married. And a gift tax return is not required for gifts between spouses, since there is an unlimited gift tax exemption for such gifts. T`he short answer is, in my opinion, no, a gift tax return is almost never required when an engagement ring is given, irrespective of value.

Stu

As I understand engagement rings, they are not considered a completed transaction (gift) until the marriage takes place. If the wedding is called off, there is an expectation that the ring is returned, not kept, or sold on eBay. As long as the wife is a citizen, there is no limit on gifts between husband and wife. I don't see that the first gift return was needed. If the marriage was canceled and the ring returned, would she have filed a gift return to give it back? JOE

Yes. Keep in mind that the "cost basis" of the gift will have been adjusted to the DOD of the first recipient and that the "taxable gift" amount is determined against the current gift limit. Until he has made over $1 M of such taxable gifts, he won't owe any gift tax. H`owever, if he waits until the nuptials to formally "gift" the ring, it would not be subject to any gifting limit. Gifts between spouses are not taxable, regardless of size.

It never occurred to me that one might have to pay a gift tax on an engagement ring. Whether you owe gift tax might depend on the laws of the state in which you reside. In some states, an engagement ring is actually a contingent gift. If the wedding does not take place, depending upon the circumstances, the ring may go back to the giver. If the wedding does take place, the gift is to a spouse, and the gift tax doesn't apply, does it?

What's his, is his and if the value exceeds the gift tax threshold, then yes. ChEAr$, Harlan

Wouldn't the answer depend on whether the gift was in the same year as the marriage? Transferring assets between spouses usually isn't reportable, and if you're married by the end of the year, the IRS considers you to be married all year. R's, John

PS: my wedding anniversary is Dec 31.

I dueled on this very xubject with an Ohio attorney (I recall his name was Jon Woodson) about 13 years ago. In the end, I was compelled by research and professional ethics to concede that Mr. Woodson was correct that the ring must be returned if the marriage does not occur. Upon marriage, it bemomes a non-taxable gift between spouses. Thus, no gift tax return should have been filed and none need be filed in the current situation.

Because I have the privilege of reading submissions before they are posted, I see that my distinguished colleague, Harlan Lunsford, disagrews with this position. It is my long standing poliicy to defer to him on issues of taxation and Scotch whiskey where he has demonstrated expertise and to ignore him on issues of Baseball where he is so obviously uncalibrated. I make an exception here because the gift is not complete until the marriage has been completed.

Dick