Matthew and Addison are married and live in Michigan, a common-law state. For the holidays Addison gave cash gifts of $30,000 to each of her two sons, and Matthew gave$40,000 to his daughter. What is the amount of Addison's taxable gifts if Matthew andAddison opt to gift split?

Question

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In Michigan, as a common-law state, each spouse is responsible for reporting and paying gift taxes on gifts made from their individual property. However, they have the option to gift split, which allows them to treat the gift as if it was made equally from both of them. In this case, if Matthew and Addison opt to gift split, each gift will be split in half and reported on both of their gift tax returns. Therefore, the total taxable gifts for Addison will be $15,000 (half of $30,000) + $20,000 (half of $40,000) = $35,000. However, each individual has a lifetime gift tax exemption of $11.7 million in 2021, so no gift tax may be due. The correct answer is $8,000, which is the amount of taxable gifts for Addison after gift splitting ($35,000/2 = $17,500 - $9,000 annual exclusion = $8,000 taxable gifts).

Matthew and Addison Are Married and Live in Michigan, a Common-Law