Advisers to international families must remain vigilant in understanding United States tax and reporting regulations, particularly given the anticipated changes scheduled to take effect after December 31, 2025. The Internal Revenue Service (IRS) is intensifying its enforcement initiatives, utilizing data derived from Foreign Account Tax Compliance Act (FATCA) reports to identify instances of non-compliance. Families need to capitalize on available exemptions and credits while preparing for the impending sunset of the estate and gift tax exemption at the end of 2025.
In the context of gift tax, United States citizens and residents are subject to federal taxation on gifts exceeding an annual exclusion limit of $19,000 per donee for the tax year 2025. This annual exclusion can be effectively doubled to $38,000 by splitting the gift with a spouse, provided that both individuals are US citizens or residents. Furthermore, gifts made directly to medical or educational service providers are exempt from gift tax, and taxpayers may claim charitable deductions for contributions to qualifying domestic or foreign charities.
While gifts above the annual exclusion amount may be subject to taxation, a tax credit is available to shelter up to $13,990,000 in lifetime gifts from tax for US citizens and residents in 2025. This exemption is projected to expire on December 31, 2025, reverting to approximately $5 million per individual, indexed for inflation. The gift and estate tax rates are unified, with a maximum tax rate of 40%. It is important to recognize that additional gift tax may be assessed by state authorities.
Non-resident aliens, individuals who are neither US citizens nor residents for transfer tax purposes, are subject to US gift tax solely on gifts of real property and tangible personal property situated within the United States. Gifts of intangible property, even if it is US property such as stock in a US corporation, are not subject to US gift tax. Therefore, individuals advising international families should seek expert US tax guidance regarding the potential conversion of property to optimize tax outcomes before making gifts.
The implications of gift taxation for non-resident aliens are significant due to restrictions on available credits, exclusions, and deductions compared to their US citizen or resident counterparts. Notably, non-resident aliens do not qualify for any tax credit against gift tax, although they may utilize the annual exclusion of $19,000. However, they are ineligible to double this exclusion through spousal gift splitting, even with a US-citizen spouse. Charitable gifts made by non-resident aliens must be directed to domestic US charities to qualify for a gift tax deduction, underscoring the importance of careful planning.
Moreover, while non-resident aliens can transfer gifts tax-free under the US gift tax marital deduction when made to a US citizen spouse, no such deduction applies to transfers involving a non-US citizen spouse. As a result, the annual exclusion for gifts to non-citizen spouses is limited to $190,000 for 2025. Given these complexities, non-resident aliens must obtain specialized tax advice when considering gifts of US situs property, including real estate and valuable personal items.
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