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Gift tax laws are complicated for all taxpayers — nonresident aliens are no exceptions. In fact, nonresident aliens face several circumstances that provide both challenges and opportunities for them. For example, multiple exemptions to the gift tax for a non-US citizen exist for those who are familiar with the law.
The information presented here is up to date as of 2020, considering the most recent adjustments to the gift tax for resident aliens. If the landscape still appears murky, consult an expert in the field.
Miller & Company, LLP is a top-rated accounting firm in NYC with offices in Queens, Manhattan, Washington DC, and Sarasota, FL. Their multilingual staff specializes in international tax law.
Nonresident Alien Status
If you don’t know whether or not you qualify as a nonresident alien, finding the answer is a logical first step. An alien, for U.S. tax purposes, refers to anyone who is not a U.S. citizen or a U.S. national. U.S. nationals are born in the unincorporated territories of American Samoa or Swains Island.
If you live in the United States, but have not passed the substantial presence or green card test, then you’re qualified as a nonresident. But if you’re married to a resident alien, you may still file your tax return as a U.S. resident alien if you file as “married filing jointly.”
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Gift Tax Rules
The Internal Revenue (IRS) considers any direct or indirect transfer of wealth from one individual to another that has not received some form of equal compensation to be a gift.
Under IRS rules, most gifts are taxable transactions, but there are exceptions, such as:
Gifts that fall below the annual gift tax exclusion
Donations to a political organization
Medical or tuition expenses paid for someone
Donations to qualifying charities
Unless the gift is for a charitable organization, you can’t deduct it from your income tax. The person giving the gift is usually responsible for paying the gift tax. But under some circumstances, the receiver may be permitted to pay it.
Your Sarasota tax professional at Miller & Company can help you make the necessary adjustments if you wish to pay the tax as the receiver.
The annual gift tax exclusion applies to each gift, so if you have multiple children, you can give them each a gift up to the limit. The annual gift tax rate is $15,000, but it’s double if you’re married and filing jointly: $30,000. This exemption doesn’t apply to nonresident alien spouses. The law only allows this tax exclusion if both spouses are citizens or residents.
If the gift does not have a market price associated with it, you need to include copies of an appraisal or other relevant documents pertaining to the transfer. You may also declare the value of the item based on fair market value, which the IRS defines as the price the piece would typically sell for if the exchange took place between two parties that had adequate knowledge and familiarity with the merchandise.
A gift’s value can't be determined from its reduced price during a forced liquidation sale of an overall estate. Nor can the value be derived from its sale in a market that’s anything other than an open and public market, although the time and location of the sale must be taken into account.
If you eventually sell the gift, your cost basis is the price at which the giver declared the value. For instance, the giver purchased the stock at $20 per share and used that as the value for the gift. Even though the price of the stock was $80 when you received it, you must use the $20 share price as your cost. If you sell it at $80, you must declare $60 in profit.
If you’re in a same-sex marriage, you’re entitled to the same annual gift tax exclusion as a heterosexual married couple, provided your union took place in a state that legally recognizes such marriages. This benefit applies even if you’re filing your taxes in another state that doesn’t legally recognize them.
If you’re living together under the titles of “husband and wife” in an informal “domestic partnership” or civil union, you don’t qualify for the spousal gift tax exclusion. The exemption is only valid if the state legally recognizes your union.
Aliens who aren’t residents are entitled to a $60,000 estate tax exemption, which equates to a $13,000 unified tax credit. But while resident aliens and U.S. citizens can use this tax credit to offset their gift tax, a nonresident alien may not: They can only use the unified credit for their estate tax.
Beginning January 1, 2018, nonresident aliens received the same $15,000 gift tax exclusion annually available to citizens and residents. On July 14, 1988, the U.S. tax code increased the gift tax exclusion that you can take every year for a non-citizen spouse to $100,000. This annual exclusion began to increase in 2002, and it reached $155,000 in the tax year 2019.
Mistakes on tax returns can be costly, and the right expertise can save you money. The experienced tax accountants at Miller & Company are ready to help. Contact us today and make an appointment with our Sarasota CPA office!
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