912 / What is the gift tax marital deduction?
The gift tax marital deduction is a deduction for the entire value of gifts made between spouses.1 The deduction does not apply, however, to a gift of a "nondeductible terminable interest" in property.2 A "terminable interest" in property is an interest which will terminate or fail on the lapse of time or on the occurrence or failure to occur of some contingency. Life estates, terms for years, annuities, patents, and copyrights are therefore terminable interests. However, a bond, note, or similar contractual obligation, the discharge of which would not have the effect of an annuity or term for years, is not a terminable interest.3
In general, if a donor transfers a terminable interest in property to the donee spouse, the marital deduction is disallowed with respect to the transfer if the donor spouse also (1) transferred an interest in the same property to another donee, or (2) retained an interest in the same property in himself, or (3) retained a power to appoint an interest in the same property, and (4) gave the other donee, himself, or the possible appointee the right to possess or enjoy any part of the property after the termination or failure of the interest transferred to the donee spouse.4 However, a terminable interest in property qualifies for the marital deduction (referred to as "QTIP") if the donee spouse is given (1) a right to the income from the property for life and a general power of appointment over the principal; or (2) a "qualifying income interest for life" in property transferred by the donor spouse as to which the donor must make an election (on or before the date, including extensions, for filing a gift tax return with respect to the year in which the transfer was made–see Q 915) to have the marital deduction apply. The QTIP regulations provide an exception to the estate tax inclusion issues that arise under Sections 2036 and 2038.5
The donee spouse has a "qualifying income interest for life" if (1) the donee spouse is entitled to all the income from the property, payable annually or at more frequent intervals, and (2) no person has a power to appoint any part of the property to any person other than the donee spouse during the donee spouse's lifetime.6 Also, the interest of a donee spouse in a joint and survivor annuity in which only the donor and donee spouses have a right to receive payments during such spouses' joint lifetimes is treated as a "qualifying income interest for life" unless the donor spouse irrevocably elects otherwise within the time allowed for filing a gift tax return.7
In the two exceptions to the nondeductible terminable interest rule explained above, income producing property is contemplated. If a gift of non-income producing property in a form to comply with either of the two exceptions is proposed, Treasury Regulation Section 25.2523(e)-1(f) should be read carefully. A marital deduction has been disallowed for a transfer to an irrevocable trust where state law provided that the interest given the spouse would be revoked upon divorce and the grantor had not provided in the trust instrument that the trust would not be revoked upon divorce.8
If the spouse of the donor is not a United States citizen, the marital deduction is not available for a transfer to such a spouse. However, in such a case, the annual exclusion (see Q 905) for the transfer from the donor spouse to the non-citizen spouse is increased from $10,000 as indexed ($19,000 in 2025-2026, $18,000 in 2024, $17,000 in 2023, $16,000 in 2022, $15,000 in 2018-2021) to $100,000 as indexed ($194,000 in 2026, $190,000 in 2025, $185,000 in 2024, $175,000 in 2023, $164,000 in 2022, $159,000 in 2021, $157,000 in 2020, $155,000 in 2019, and $152,000 in 2018)9 (provided the transfer would otherwise qualify for the marital deduction if the donee spouse were a United States citizen). The $100,000 amount is adjusted for inflation, as is the $10,000 amount (see Q 905).10
1. IRC § 2523(a).
2. IRC § 2523(b); Treas. Reg. §§ 25.2523(a)-1(b)(2), 25.2523(b)-1.
3. Treas. Reg. § 25.2523(b)-1(a)(3).
4. Treas. Reg. § 25.2523(b)-1(a)(2).
5. Treas. Reg. § 25.2523(f)-1(d)(1).
6. IRC §§ 2523(e), 2523(f).
7. IRC § 2523(f)(6).
8. TAM 9127005.
9. Rev. Proc. 2017-58, Rev. Proc. 2018-57, Rev. Proc. 2019-44, Rev. Proc. 2020-45, Rev. Proc. 2021-45, Rev. Proc. 2022-38, Rev. Proc. 2023-34, Rev. Proc. 2024-40.
10. IRC § 2523(i).