Mechanics of Gifting Vanguard Shares to NRA Spouse

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canga
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Mechanics of Gifting Vanguard Shares to NRA Spouse

Post by canga » Sun Jul 27, 2014 3:21 am

Hello Bogleheads,

I am trying to understand the mechanics of gifting appreciated stock shares to my non-resident alien spouse so that we can rebalance back to our asset allocation and legally avoid paying US taxes. I understand that for gifts made in 2014, the annual exclusion for gifts to a non-resident alien (NRA) spouse will be US$145,000.

Below is my background and a few questions. Any help would be greatly appreciated.

My spouse (DW) is a citizen of a foreign country and she is not taxed on gifted stock or capital gains from selling stocks. DW is a "Nonresident Alien" spouse for US tax purposes. We both live abroad and I am a Bona Fide Resident. I have never filed "Married Filing Jointly" for US taxes. We eventually plan to apply for her green card and get her US citizenship within the next 5 to 10 years (still 3+ years left on overseas contract), at which point we will likely file Married Filing Jointly.

Questions/Challenges:

1. Is this an effective tax strategy? It seems like this would only be a beneficial strategy for shares where there are significant unrealized capital gains. According to my research, I believe DW would be subject to a 30% withholding on dividends and capital gains until she becomes a resident alien (or citizen?). This year, the shares I am planning on gifting would be less than $100,000 market value with approximately $35,000 in unrealized gains. I'd be saving $5250 in taxes on capital gains ($35,000x0.15), however potentially losing $300/year due to the increased withholding for NRA spouse ($100,000x0.02[est. dividend]x0.15[difference between US tax and NRA withholding]), or a breakeven of about 18 years.

2. Can she gift $145,000 back to me during another tax year to put them back into Vanguard?

3. DW cannot open a Vanguard account as she is a non-resident alien. We do have a US physical address (not a PO box) that we can use. Which brokerage would be recommended for her where she can purchase Vanguard mutual funds or ETFs? I understand she can get an account at Scottrade and Firstrade. Once she gets her green card we will roll the money over to Vanguard.

4. Any hidden gotchas I haven't accounted for?

Thanks for your help!

canga
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Re: Mechanics of Gifting Vanguard Shares to NRA Spouse

Post by canga » Thu Jan 01, 2015 9:56 am

Bumping this back up. Anyone gift shares to a foreign spouse? Thanks again.

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runner9
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Re: Mechanics of Gifting Vanguard Shares to NRA Spouse

Post by runner9 » Thu Jan 01, 2015 10:03 am

I have no ideas but was curious about the $145K figure. It does appear to be correct.

https://www.hsdl.org/?view&did=755134

This article might provide some insight.

Laura
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Re: Mechanics of Gifting Vanguard Shares to NRA Spouse

Post by Laura » Thu Jan 01, 2015 2:15 pm

Bumping again so someone who has tried this can help you out.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

Krischi
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Re: Mechanics of Gifting Vanguard Shares to NRA Spouse

Post by Krischi » Thu Jan 01, 2015 4:32 pm

I can't comment on the specifics of gifting shares, but I would like to point out that you have the option of treating your spouse as a resident alien for tax purposes. See here: http://www.irs.gov/Individuals/Internat ... ien-Spouse

It will depend on the specifics of your situation, income, etc., but under certain circumstances, there can be large advantages to handling taxes this way, especially if using married filing jointly status pushes you into a lower tax bracket. You also get the full deductions and exemptions for both of you. The drawback is that your spouse's worldwide income would become taxable in the U.S., as well.

canga
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Re: Mechanics of Gifting Vanguard Shares to NRA Spouse

Post by canga » Fri Jan 02, 2015 9:28 pm

Krischi wrote:I can't comment on the specifics of gifting shares, but I would like to point out that you have the option of treating your spouse as a resident alien for tax purposes. See here: http://www.irs.gov/Individuals/Internat ... ien-Spouse

It will depend on the specifics of your situation, income, etc., but under certain circumstances, there can be large advantages to handling taxes this way, especially if using married filing jointly status pushes you into a lower tax bracket. You also get the full deductions and exemptions for both of you. The drawback is that your spouse's worldwide income would become taxable in the U.S., as well.
This is something I am debating as well. Once you elect to file MFJ with NRA spouse then you have to keep using it. If you revoke MFJ then my understanding is that MFJ can never be selected again (even with a new spouse).

If filing MFJ wouldn't she have to declare the sale of the gifted stock and she would owe the capital gains? This is something I was hoping to avoid.

Edit: Or would she receive a stepped up basis on the gifted shares?
Last edited by canga on Fri Jan 02, 2015 9:49 pm, edited 1 time in total.

HIinvestor
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Re: Mechanics of Gifting Vanguard Shares to NRA Spouse

Post by HIinvestor » Fri Jan 02, 2015 9:45 pm

Have you run all of the by your CPA? It seems if you are trying to save a significant amount of taxes, that would be the best person to research and advise you rather than folks who don't really know your situation thoroughly. The CPA can also work with you in case you are audited as well as advise you of the pros and cons of various scenarios.

canga
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Re: Mechanics of Gifting Vanguard Shares to NRA Spouse

Post by canga » Mon Jan 05, 2015 8:38 am

HIinvestor wrote:Have you run all of the by your CPA? It seems if you are trying to save a significant amount of taxes, that would be the best person to research and advise you rather than folks who don't really know your situation thoroughly. The CPA can also work with you in case you are audited as well as advise you of the pros and cons of various scenarios.
I'll be calling my current CPA, but in the past I've not been too happy with their answers. I'm currently looking for a CPA in the country with experience with US taxes. Unfortunately the CPA expertise with expat taxes has been less than desirable. Bogleheads by far have had the most expertise -- sorry to say I may have stumped them! If I get any answers I will report back.

Laura
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Re: Mechanics of Gifting Vanguard Shares to NRA Spouse

Post by Laura » Mon Jan 05, 2015 7:01 pm

I would look for a CPA based in the US with expat experience and with experience with NRA spouses. I don't think you need a local one necessarily unless they are also handling your local tax requirements.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

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Re: Mechanics of Gifting Vanguard Shares to NRA Spouse

Post by LadyGeek » Mon Jan 05, 2015 7:41 pm

This thread is now in the Personal Finance (Not Investing) forum (gifting).
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