If you give someone money or property during your life, you may be subject to federal gift tax. The money and property you own when you die, your estate, also may be subject to federal estate tax. However, federal tax laws allow you give away during your lifetime or leave to your heirs certain amounts that are exempt from taxation. The Economic Growth and Tax Relief Reconciliation Act of 2001 provides for increasing exemptions from the estate tax, with its elimination in 2010. However, under the law’s sunset clause the tax will return in 2011 unless extended.
Annual gift tax exclusion
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In addition to the annual exclusion amounts, you also can give the following without triggering the gift tax:
Unified credit You must subtract the unified credit from any gift tax that you owe. Gift taxes don’t kick in until after you have given away $1 million over your lifetime. This exclusion applies for tax years through 2009. Any unified credit you use against your gift tax in one year reduces the amount of credit that you can use against your gift tax in a later year. The total amount used during life against your gift tax reduces the credit available to use against your estate tax.
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