Matthew and Addison are married and live in Michigan, a common-law state. For the holidays Addison gave cash gifts of $42,250 to each of her two sons, and Matthew gave $42,700 to his daughter. What is the amount of Addison's taxable gifts if Matthew and Addison opt to gift-split?

Question

Quizplus · Accepted Answer

Since Michigan is a common-law state, each spouse can make gifts up to $15,000 (as of 2020) per recipient without triggering any gift tax. Therefore, both Addison and Matthew's gifts to their children fall under the annual exclusion and are not taxable gifts.

However, if they opt to gift-split, they can combine their annual exclusion amounts and each gift can be considered as if it were made one-half by each spouse. In this case, the total cash gifts amount to $127,200 ($42,250 x 2 + $42,700).

By gift splitting, each spouse is deemed to have made a taxable gift of $31,800 to each of their respective stepchildren ($63,600 ÷ 2). Since each taxable gift is below the annual exclusion amount, there is no gift tax due.

Therefore, the total amount of Addison's taxable gifts is $31,800, which is less than the annual exclusion amount and does not require her to file a gift tax return.

The correct answer is C) $18,600, which is the amount of Addison's portion of the taxable gifts.

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