Looking at my backlog of questions to post, I noticed several related to gift taxes; so I’m doing a rare combination post.  Each of the following questions was from a different person.

Q-1:

 Mr. Kerstetter, CPA,
Your column regarding estate/gift tax in the website  is very informative. I have one simple question. In 2010, gift tax is repealed. Does it mean that one can transfer any amount of money as gift in that year without having to pay any gift tax? I am looking forward to hearing from you.

Sincerely,

A-1:

Your information is incorrect.  For people passing away during 2010, there will be no estate tax because that tax only is repealed for that year.

However, there is no similar repeal scheduled for the Gift Tax for 2010 or any other year.  That will be treated in the same manner as we currently have.

It is confusing because the limits and many of the rules for Estate and Gift taxes used to be in sync with each other.  However, a few years ago our imperial rulers in DC decided to separate the two taxes in a way and have different rules for each.

I hope this helps.  You should be working with your own personal professional tax advisor if you have big gifting plans in mind.

Good luck.

Kerry Kerstetter

Q-2:

Thank you for posting very useful information on your web site. You stated  that the current annual gift tax exlusion allownace is $12000. I will appreciate if you can advise whether this limit will be increased in the near future. If yes, to what amount and in what year?

A-2

The annual limit on gifting with no gift tax consequence is by law only increased in increments of $1,000 when the cumulative cost of living factor (inflation) since the last adjustment warrants it.  This is reviewed each year after the end of August, covering the CPI increase from 9/1/07 through 8/31/08 for the next adjustment.

Considering the potentially large cost of living increase we are all suffering through right now, especially in terms of the skyrocketing costs of energy, transportation and food, I am guessing that for 2009, there will be more than enough of a cumulative increase in the CPI to raise the annual limit to $13,000.

I hope this helps you plan things.

Kerry Kerstetter

Q-3:

A-3:

Gift taxes and estate taxes are an integral part of the same tax system, which is separate from the income tax system.

To prevent people from giving away enough of their wealth to avoid estate taxes when they pass away, there are potentially taxes on gifts made during the person's lifetime.  To avoid being too ruthless, there has long been an annual exemption from gifts which are subject to this tax. This is currently $12,000 in a calendar year per donor (giver) per donee (recipient).  No gift tax return is required if all gifts during a year are under that limit.

In addition to the annual limits, each person also has a lifetime exclusion of one million dollars of gifts that can be made without having to pay gift taxes.  These gifts do have to be reported to IRS on Form 709 and will reduce the amount of the estate that will be free from estate tax after the person passes away.

So in your example, if your aunt had used up $100,000 of her lifetime gift exemption while she was alive, when her estate tax return is prepared, her tax free amount will be reduced by that same $100,000.

Gifts are calculated based on the current fair market values of the items being given.  You can download the gift tax Form 709 and its instructions from the IRS website:

http://www.irs.gov/pub/irs-pdf/f709.pdf

http://www.irs.gov/pub/irs-pdf/i709.pdf


I hope this clears up your confusion.

Kerry Kerstetter

Q-4:

Would you please answer a question about check date versus date check cleared donor's account?  Here's the situation:

 

    Donor writes and gives $10,000 check December 12, 2007 and is alive when check clears donor's bank January 4, 2008 and this is the only gift to recipient in 2007.  

 

    Donor writes and gives $10,000 check April 1, 2008 and donor is alive when the check clears donor's account April 7, 2008 and this is the only gift to recipient in 2007.

 

Question:

 

    Are these gifts made in separate years concerning the annual gift tax exclusion?

 

Thank you in advance for your opinion or some lead to the answer.

A-4:

I'm sorry, but I have had a long standing policy of not answering homework questions for people.  I don't have enough time to answer as many real world questions as I would like to.

Good luck.

Kerry Kerstetter

Labels: Gifting

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 6/07/2008 12:57:00 PM Send this post: