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What is the unified estate and gift tax credit and how does it reduce my gift taxes?
In 2001, every American received a "credit" against federal Estate and Gift Taxes of $220,550 which was equivalent to transferring $675,000 tax free to your heirs. And, if you were married, and your spouse (if an American) also used the $675,000, you may, as a couple, give $1.35 million to your heirs free of Estate Tax. Beginning in 2006, 2007, 2008, the amount you can pass tax free to your heirs increases $2 million and then to $3.5 million in 2009. In 2010, the estate tax (but not the gift tax) expires; in 2011, the estate tax again becomes effective at the 2002 exemption level for deaths occurring in 2011 and thereafter.
This credit is referred to as the "unified" credit because federal gift and Estate Taxation are integrated into one unified tax system. There is no Estate or Gift Tax on the first $780,800 of your taxable gifts and transfers at death. You ante up when the sum reaches over $780,800. For example, suppose you give $25,000 to your sister in 2006 as a gift during your life. The first $12,000 of your $25,000 gift is tax-free. You will either pay a Gift Tax on the excess over $12,000 or take advantage of the $780,800 unified credit to avoid paying the tax on your gift-giving. Using the latter option will reduce the amount available to offset the Estate Tax upon your death. On the other hand, if you report and pay the tax, and later die, these previously taxed gifts are added back to your estate, the Estate Tax recalculated, and the amount of Gift Taxes you previously paid on the excess are credited against any final Estate Tax due. |
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Tax Lawyers
Tax Law Forum |
How are the federal gift taxes computed?
Can I gift during my lifetime without incurring any gift tax liability?
You mean there is no limit on the number of people you can make gifts to?
Can I give away more than $12,000 to an individual in a year? If so what happens?
Can any gifts qualify for the gift tax exclusion?
What is the unified estate and gift tax credit and how does it reduce my gift taxes?
Can I avoid the gift tax by gifting or leaving everything to my spouse?
Key estate and gift tax changes were made in June, 2001. What were those changes?
What if I gift everything to my 9-year child?
What about charitable gifts for purposes of the federal gift tax?
Can I pay someone’s medical or education expenses and not be taxed for making a gift?
How is stock or property valued for gift tax purposes?
What happens if gifted stock is then sold?
When must I report my gifts for federal gift tax purposes?
Who must file and pay the federal gift tax?
What is the Generation Skipping Transfer Tax (GST)?
Are there state gift taxes?
What are gift taxes?
What is the relationship between gift tax and estate tax?
When does a gift become subject to the federal gift tax?
How are gift taxes calculated?
Does the $12,000 maximum tax-free gift per person rule apply in the case of an adult child giving money to his parents to be used for living expenses?
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