Federal Gift Taxes

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Federal GIFT Taxes

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	Federal Gift Taxes
	Under recent tax law, the federal gift tax has not been repealed, but it has been modified to prevent people from using gifts to transfer assets from higher tax bracket owners to lower bracket owners. The new law creates a $1 million lifetime gift tax exclusion beginning in 2002. The gift tax rate will gradually decline. In 2010, gifts in excess of $1 million will be subject to a tax equal to the top income tax rate at that time, which would be 35% unless changed. Think of this new gift tax exclusion as a piggy bank you can fill up with $1 million in assets and give away to anyone you want gift- and estate-tax-free. However, there is one catch. When you gift an asset during your lifetime, you gift your cost basis in that asset to the person receiving the gift.
	$11,000 Annual Exclusion
	During your lifetime, no more than $11,000 can be gifted each year to an individual tax free. Beginning in 1998, this annual exclusion was indexed to inflation in round $1,000 increments. If you gift more than $11,000 to an individual in any given year, a gift tax return must be filed and you must pay a gift tax at the highest income tax rate currenlty in effect.
	Exceptions
	Between husband and wife, the IRS allows unlimited tax free transfer of assets during your lifetime. In addition, you can gift an unlimited amount to charity.

	This information is not designed, meant, nor does it constitute the rendering of legal advice. You should consult with an attorney and tax advisors before implementing any strategy discussed here.


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