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Gifting to Non-Resident Alien Spouse – Pros, Cons & Caveats

May 04, 2021

Are you a U.S. Citizen, Green Card Holder, or tax Resident with a Non-Resident Alien (NRA) Spouse? If so, you may be able to benefit from tax-free gifting!

Eligible U.S. persons can gift certain assets to their NRA spouse without the risk of exposure to U.S. taxation. Here’s what you should know.

Who is a U.S. Person?

Naturally, a U.S. person can be a citizen, a green card holder, or an individual who has met the substantial presence test. Surprisingly, if you are born outside of the United States, but one or both of your parents are U.S. citizens, you may be deemed a U.S. person.

What Can I Gift?

Giving your significant other a gift can seem as though it should not bear any tax implications. As true as that is between two U.S. persons, adding in the complexity of a non-U.S. spouse creates a field of confusion for many taxpayers. Gifts can range from direct cash transfers to appreciated stock, and anything in between. Certain rules and regulations may apply in gifting U.S. real estate; however, nothing is impossible!

The Pros

For short-term financial planning, gifting appreciated stock, or cash to your non-U.S. spouse can have significant U.S. tax benefits. For example, by gifting cash, it allows your non-U.S. spouse to invest in income producing assets, which will allow you to shift the income to your NRA spouse.

Additionally, gifting appreciated stock to a non-U.S. spouse who lives in a low or no-tax jurisdiction can result in a far more favorable tax treatment compared to disposing of the shares within the U.S. Rules regarding the gifting of appreciated stock through partnerships or corporations will differ.

The Cons

Gifting cash or appreciated stock to a non-U.S. spouse can seem enticing to do. Sending money overseas to your loved ones and providing financial support may even be expected. However, every good thing must come with a catch. Depending on the value of gifts being transferred, additional regulatory and compliance tasks may arise. More commonly, taxpayers make these gifts without knowing that they may be exposed to U.S. tax, or reporting requirements, leaving them vulnerable for accrued interest and penalties.

The Caveats

As aforementioned, every good thing must come with a catch. The current laws in the United States allow for an annual gift exclusion of $159,000 (2021) to a non-U.S. spouse without the need for additional reporting. However, you may desire to move assets much quicker, and frankly, in much larger amounts. Gifting assets valued more than the annual exclusion will warrant a Gift Tax Return (Form 709), all while reducing the donor’s lifetime exemption of $11.58M as of today.

Additionally, a non-U.S. spouse, domiciled outside of the U.S. may trigger an estate tax return filing requirement in the United States if they hold U.S. situs assets such as U.S. real estate, tangible personal property, and securities of U.S. companies that exceed the value of $60,000.

KLR’s vast knowledge of international taxation, along with our expertise in gift, and estate tax planning can guide you and your family into the right direction and aide in achieving your estate financial freedom. Give us a call today!

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