An individual who transfers property to another while receiving nothing, or a small amount, in return, is liable for gift tax. Transfers are taxable whether or not the donor intends them to be gifted.
The gift tax applies when certain U.S.-located property is gifted to a nonresident who is not a United States citizen. You give a gift if you give property (including money) or the use of or income from property without expecting to obtain something of at least equal value in return. A gift may be made when you sell something at a lower price than its fair market value or make an interest-free or reduced-interest loan.
A nonresident who is not a citizen of the U.S. that transfers real or tangible personal property situated in the U.S. is subject to the gift tax. However, gifts of intangible property are not taxed.
These are some of the more common questions and answers related to Gift Tax issues for nonresidents who are not citizens of the United States.
Is There a Gift Tax for Nonresident Aliens?
Yes. Suppose a nonresident alien gives a gift of tangible property in the United States to another person. In that case, the alien must pay a gift tax if the gift exceeds the annual gift tax exclusion amount.
Who Is Responsible for Paying the Gift Tax?
Donors are generally responsible for paying gift taxes. The donee (the person receiving the gift) may agree to pay the tax instead under special arrangements. Consult a tax lawyer if you are considering this type of arrangement.
What Constitutes a Gift?
When a certain property is transferred directly or indirectly to an individual, as described below, but full consideration (estimated in money or money’s worth) is not obtained in return, it is considered a gift subject to the gift tax.
A nonresident who is not a citizen of the United States is subject to gift (and generation-skipping transfer (GST)) taxes for gifts of real and tangible property situated in the United States.
Nonresidents who aren’t citizens of the United States are those who, at the time of the gift, either
- Were not citizens of the United States and didn’t reside there, or
- Were domiciled in a United States possession and acquired citizenship by birth or residence there.
A nonresident who has made a gift subject to U.S. gift tax is required to file the gift tax return (Form 709 United States Gift and Generation-Skipping Transfer Tax Return) if any of these apply:
- You donated any gifts of future interests.
- Your gifts of present interests to anyone other than your current spouse amount to more than $16,000 (for the year 2022).
- Your outright gifts to your spouse, who isn’t a United States citizen, total more than $164,000 (for 2022).
What Gifts Can Be Excluded?
The following gifts are generally not taxable:
- Gifts that do not exceed the annual exclusion for the calendar year.
- A person’s tuition or medical expenses (the educational and medical exclusions).
- Gifts for your spouse who is a U.S. citizen. The annual exclusion for gifts for married couples who are not U.S. citizens is $164,000 in 2022.
- Donations to a political organization.
The gifts made to trusts, community chests, funds, foundations, fraternal societies, orders, or associations operating under the lodge system must be used within the United States.
How About Gifts of Intangible Property?
Intangible gifts from a nonresident alien are typically not taxable. Intangible property includes stocks, bonds, life insurance, and notes.
Is it Possible to Deduct Gifts from My Tax Return?
Giving to your heirs or leaving your estate to them does not normally affect your federal income tax. Giving is not deductible (except for certain gifts that are deductible charitable contributions made to United States charities using assets in the United States).
How Can My Spouse and I Give Away Property That We Own Together?
The annual exclusion will apply to gifts donated by you and your spouse as if separate individuals made them. The combined exclusion for gifts made by you and your spouse in 2022 is $32,000. Gift splitting is only possible if both spouses are U.S. citizens or residents; otherwise, a gift tax return must be filed by each spouse.
Can I Sell Property That Was Given to Me?
In general, your basis in the property received is the same as the donor’s. For you to determine the gain (or loss) from the sale of the property, you must determine your basis. In the case that you were given land that the donor had bought for $10,000 (and that was their basis), and you sold it for $100,000 later, you would have to pay income tax on a gain of $90,00.
What Is Fair Market Value?
Fair market value is the price at which a willing buyer and a willing seller would exchange hands. Neither is obligated to buy or sell, and both have reasonable knowledge of relevant facts.
In determining the fair market value of a particular item of property included in a decedent’s gross estate, a forced sale price is not to be used. The fair market value of the property is not calculated by the sale price of the item in a market other than the one in which it is most commonly sold by the public, taking into account its location as appropriate.
Can a Married Same-Sex Donor Claim the Gift Tax Marital Deduction?
In the context of federal tax law, the terms “spouse,” “husband,” and “wife” refer to individuals of the same sex who are legally married under the laws of a state whose laws allow the marriage of two people of the same sex and who remain so married.
Nevertheless, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include people (whether of the opposite sex or the same sex) who’ve joined into a registered domestic partnership, civil union, or other related formal relationship recognized under state law that is not denominated as a marriage under the laws of that particular state. The term “marriage” does not apply to such relationships.
In case your spouse is not a U.S. citizen, tax-free gifts are limited to gifts of present interest whose total value is less than the annual exclusion amount, which for 2022 is $164,000. A lifetime gift tax credit is not available to offset taxes resulting from such gifts.
Direct gifts generally qualify for the unlimited marital deduction if your spouse is a U.S. citizen.
What If the Nonresident Alien’s Home Country Also Taxes Them?
Tax credits are available against the U.S. gift tax if the country where the nonresident alien resides also taxes gifts of tangible property located in the U.S. Some countries even have tax treaties with the U.S. that address this issue. Australia, France, the United Kingdom, and Japan are among these countries.
Do I Need an Estate Lawyer?
If you or a loved one are thinking about making a gift of tangible property, an estate attorney can help you figure out how best to make that gift and help you deal with all of the legal problems that often occur when making a gift. You can also hire a lawyer if you encounter problems while attempting to give the gift.