When it comes to gifts between spouses, US tax rules can vary significantly depending on whether both spouses are US citizens. The Internal Revenue Code provides generous exemptions for transfers between US citizen spouses, but the rules are more restrictive when the receiving spouse is a non-US citizen, also known as a nonresident alien (NRA).

Gifts from a US Citizen to an NRA Spouse

The unlimited marital deduction, which allows tax-free transfers between US citizen spouses, does not apply when the recipient spouse is an NRA. Instead, the IRS imposes an annual exclusion limit on gifts to an NRA spouse. For 2024, that limit is $185,000 (indexed for inflation).

If gifts in a calendar year exceed the annual limit, the excess is subject to US gift tax and must be reported on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. The donor spouse can use their lifetime gift and estate tax exemption (currently $13.61 million in 2024) to offset any gift tax, but reporting is still required.

Note that the exclusion applies per year, not per gift, so larger transfers, such as property or joint accounts, need careful planning.

Gifts from an NRA Spouse to a US Citizen Spouse

Gifts from an NRA spouse to a US citizen spouse are not subject to US gift tax because the donor is not a US person. However, if the asset being gifted is US-situs property (such as US real estate or tangible assets located in the US), then US gift tax may apply even if the donor is an NRA.

In addition, while the gift itself may not be taxable in many situations, reporting may still be required for the recipient US citizen spouse. If the total value of gifts from the NRA spouse exceeds $100,000 in a calendar year, the US citizen spouse must report the receipt of those gifts on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Failure to file can result in significant penalties.

Planning Considerations

Currency transfers: If transferring foreign currency or assets, valuations should be determined in US dollars at the spot exchange rate on the date of transfer.

Joint property ownership: When adding a spouse as a joint owner, the IRS may view this as a gift of half the property’s value.

Lifetime exemption strategy: For US citizen donors exceeding the annual NRA spouse limit, it may be efficient to use part of the lifetime gift exemption.

Record-keeping: Maintain records of transfer dates, amounts, and asset valuations to substantiate filings.

Final Thoughts

While gifts between US citizen spouses can be unlimited and tax-free, the rules change substantially when one spouse is not a US citizen. Staying on top of the annual exclusion limits, lifetime exemption rules, and reporting thresholds is essential to avoid unexpected US gift tax liabilities and penalties.

The information in this blog post is for general informational purposes only and does not constitute professional tax advice. We strongly recommend consulting a qualified tax professional before making any decisions. US Expat Tax Advisor is not liable for any actions taken based on this content.

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