Matthew and Addison are married and live in Michigan, a common-law state. For the holidays Addison gave cash gifts of $41,500 to each of her two sons, and Matthew gave $41,800 to his daughter. What is the amount of Addison's taxable gifts if Matthew and Addison opt to gift-split?

Question

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In a common-law state, property and gifts belong to the individual who earned or received them, not to the marital community. However, if both spouses agree to gift-split, then they can divide the gifts equally between each other for tax purposes. In this case, if Addison and Matthew opt to gift-split, then each of them will be considered to have made gifts of $41,500 and $41,800, respectively. The annual gift tax exclusion for 2020 is $15,000, which means only gifts above that amount are subject to gift tax. Therefore, Addison's taxable gifts would be $11,500 ($41,500 - $15,000 - $15,000) and Matthew's taxable gifts would be $26,800 ($41,800 - $15,000 - $15,000). Since Addison's taxable gifts are lower, her taxable gifts are the ones that matter in this case. Therefore, the answer is C) $17,400.

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