Gift Tax Exclusion Changes

The IRS is making it easier for you to give part of your estate to your beneficiaries with new gift tax exclusion rules. One of the most important things to realize is that if you are making a gift to your spouse, you do not have to pay the gift tax. You also do not have to pay the gift tax if you keep the gift under the annual exclusion amount. You can make gifts tax-free to any number of individuals if you stay under that limit (for example, if you have four children, you can give them each $13,000 without paying gift taxes on the amount).

The estate tax is a tax paid upon the death of an individual who leaves money and property to family. The gift tax is a tax that applies when one person gives another person property or money and receives nothing in exchange for what was given. The person giving the property or cash is the one who must report and pay the taxes on the gift, although the person receiving the gift can in some cases pay the tax.

The Economic Growth and Tax Relief Reconciliation Act of 2001 has added new rules to help ease the tax burden for those with larger estates. The provisions of the act include repealing the estate tax over a specified period and reducing the gift tax rate to 35 percent.

According to the IRS, there are specific items that can be excluded from the gift tax, including


  • gifts that do not exceed the annual exclusion amount each year,
  • gifts in the form of educational expenses or medical expense payments,
  • gifts given to a spouse,
  • gifts given to a political organization, and
  • certain gifts to charitable organizations.

There are two main forms on which you must report gifts to the IRS. The first is Form 706. Form 706, for your 2009 return and beyond, will feature several changes, including these:

  • The unified credit equivalent increases from $2,000,000 to $3,500,000.
  • The annual gift exclusion has increased from $12,000 to $13,000.
  • Instead of filing for a state death tax credit, taxpayers will now take that item as a deduction.

Changes to Form 709, United States Gift Tax Return, state that gift tax credits cannot be filed until the year after the gift is made. In other words, if a gift is made on January 1, 2009, one would have to wait until January 1, 2010, to file but could file no later than April 15, 2010.

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