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taxmap/pubs/p950-000.htm#en_us_publink100099442
Publication 950

Introduction 
to Estate 
and Gift 
Taxes

rule

What's New(p1)


taxmap/pubs/p950-000.htm#TXMP177886b0Introduction

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) may be subject to federal estate tax and the gross income of your estate may be subject to federal income tax. The purpose of this publication is to give you a general understanding of when these taxes apply and when they do not. It explains how much money or property you can give away during your lifetime or leave to your heirs at your death before any tax will be owed. Gifts you make during your life or bequests from your estate can also be subject to the generation-skipping transfer (GST) tax, if the gifts or bequests are to a person, such as a grandchild, who is more than one generation younger than you.
taxmap/pubs/p950-000.htm#en_us_publink100099444

No tax owed.(p1)

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Most gifts are not subject to the gift tax and most estates are not subject to the estate tax. For example, there is usually no tax if you make a gift to your spouse or to a charity or if your estate goes to your spouse or to a charity at your death. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. See Annual exclusion under Gift Tax, below.
Even if tax applies to your gifts or your estate, it may be eliminated by the unified credit, also known as the applicable credit amount, discussed below. However, many estates are subject to federal income tax. See Income Tax on an Estate.
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No return needed.(p2)

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Gift tax returns are filed annually. However, you generally do not need to file a gift tax return unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year, or a gift not subject to the annual exclusion. An estate tax return generally will not be needed unless the estate is worth more than the basic exclusion amount for the year of death. However, you may wish to file a return if a deceased spouse's estate has any unused exclusion amount that the surviving spouse could use. If an estate tax return must be filed, it is generally due 9 months after the date of death.
taxmap/pubs/p950-000.htm#en_us_publink100099446

No tax payable by the person receiving your gift or bequest.(p2)

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Generally, the person who receives your gift or your bequest will not have to pay any federal gift tax or estate tax because of it. Also, that person will not have to pay income tax on the value of the gift or inheritance received. However, covered gifts or bequests received from expatriates after June 16, 2008, may be subject to tax which must be paid by the recipient. Consult a qualified tax professional for more information.
taxmap/pubs/p950-000.htm#en_us_publink100099447

No income tax deduction.(p2)

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Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions) or any federal gift resulting from making those gifts. You also cannot deduct the value of any bequests made or estate tax resulting from making bequests.
taxmap/pubs/p950-000.htm#en_us_publink100099448

What this publication contains.(p2)

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If you are not sure whether the gift tax, the estate tax, the income tax, or the GST tax applies to your situation, the rest of this publication may help you. It explains in general terms:
This publication does not contain any information about state or local taxes. That information should be available from your local taxing authority.
taxmap/pubs/p950-000.htm#en_us_publink100099449

Where to find out more.(p2)

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This publication does not contain all the rules and exceptions for federal estate, gift, income, or GST taxes. Nor does it contain all the rules that apply to nonresident aliens. If you need more information, see the following publication, forms, and instructions.
To order these forms, call 1-800-TAX-FORM (1-800-829-3676). If you have access to TTY/TDD equipment, you can call 1-800-829-4059. You can also get forms, instructions, and publications or research answers to tax questions by visiting the IRS website at IRS.gov.
taxmap/pubs/p950-000.htm#en_us_publink100099450

Unified Credit (Applicable Credit Amount)(p2)

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A credit is an amount that reduces or eliminates tax. The unified credit applies to both the gift tax and the estate tax and it equals the tax on the applicable exclusion amount. You must subtract the unified credit from any gift or estate tax that you owe. Any unified credit you use against gift tax in one year reduces the amount of credit that you can use against gift or estate taxes in a later year.
Beginning in 2011, the amount of unified credit available to a person will equal the tax on the basic exclusion amount plus the tax on any deceased spousal unused exclusion (DSUE) amount. The DSUE is only available if an election was made on the deceased spouse's Form 706.
The unified credit on the basic exclusion amount for 2011 is $1,730,800 (exempting $5 million from tax) and is $1,772,800 for 2012 (exempting $5,120,000 from tax).
The following table shows the unified credit (recalculated at current rates) for the calendar years in which a gift is made or a decedent dies after 2001.
taxmap/pubs/p950-000.htm#en_us_publink1000265744

Table of Unified Credits
(Recalculated at Current Rates)

PeriodRecalculated Unified Credit
1977 (Quarters 1 and 2)$6,000
1977 (Quarters 3 and 4)$30,000
1978$34,000
1979$38,000
1980$42,500
1981$47,000
1982$62,800
1983$79,300
1984$96,300
1985$121,800
1986$155,800
1987 through 1997$190,800
1998$199,500
1999$208,300
2000 and 2001$217,050
2002 through 2010$330,800
2011$1,730,800
2012$1,772,800
For examples of how the credit works, see Applying the Unified Credit to Gift Tax and Applying the Unified Credit to Estate Tax, later.