Gift Splitting

DEFINITION of 'Gift Splitting'

A taxation rule that allows a married couple to split a gift's total value as if each contributed half of the amount. Gift splitting allows a couple to increase their total gift tax exemption amount by combining individual allowances.

BREAKING DOWN 'Gift Splitting'

For gift splitting to be official, both spouses must agree to the gift and specify the situation when filing taxes. In 2011, the gift tax exemption was set at $13,000 per individual gift annually. Gift splitting allows a couple to donate a total of $26,000 before being taxed on the contribution.

For example, let's say you want to give your child $20,000 to purchase a vehicle. If you make the gift alone, $7,000 ($20,000-$13,000) will be subject to gift taxes. However, if you split the gift with your spouse, with each of you contributing $10,000, both contributions will fall under the $13,000 limit, making the entire gift non-taxable.

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