By Bethany Bouw, CPA
Around this time of year it is common to find ads for flowers, chocolate, and jewelry which can mean only one thing: Valentine’s Day. While foreign tax considerations are not nearly as romantic and sentimental a gift for your foreign spouse, you can be assured that you will not regret taking the time to consider what their status means for gifts and estates. Presents are still advisable.
Many taxpayers think that once they get through the hurdles of marrying their foreign spouse and the paperwork entailed in marriage, residency, and work permits that it will be just like being married to a US citizen. Unfortunately, that is not the case for US taxation. It is vital to make sure you inform yourself as to what the differences are.
Gifting to non-US spouses
For married couples that are both US citizens, the gifts between the spouses would qualify for the marital deduction and therefore would not be subject to gift tax or eat up one’s unified credit. A couple with one spouse who is not a US citizen have limits on non-taxable gifts and also additional reporting considerations. A non-US citizen spouse who is not a US resident that gifts the US person more than $100,000 in a year creates a reporting requirement. Conversely, a US citizen who gifts their non-US citizen spouse may not be able to do so without creating gift taxation. The annual exclusion for gifts to a non-US citizen spouse is $155,000 for 2019. The annual exclusion for gifts to non-US citizen spouses, like the typical annual gift tax exclusion, is adjusted for inflation. Jointly purchased assets with a non-US citizen could create gifts that the US citizen needs to consider against the annual exclusion. Depending on where you live, buying a house could incur a gift tax or force the taxpayer to use a portion of their unified credit.