Tax Guru – Ker$tetter Letter

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LifeTime Gift Tax Exclusion

Posted by taxguru on July 9, 2007

Q:

Subject: gift tax question

My mother will be selling property soon that I was supposed to inherit upon her death. I am supposed to receive the proceeds, but instead of her gifting me the property, I have been advised that she should sell the property in her name to pay lower capital gains rates and alternative minimum taxes than I would since my annual income is much higher and gift the after capital gains tax proceeds to me.

 

I was told that she could give a one time gift of up to $1,000,000 exempt from gift tax but subtracted from her eventual estate. In other words, for 2007 the gift of $1,000,000 would reduce her exempt estate taxes to $1,000,000 from the $2,000,000 current limit. I have been assured by my CPA that is the case, but I can find nothing online including IRS.gov that mentions anything other than a $12,000 annual exemption from gift taxes.

 

This deal is based on my ability to receive the after tax proceeds (approx. $850K) without any gift taxes being paid by my mother in addition to the capital gains taxes. If both capital gains taxes and gift taxes applied to these funds the government would end up with more of the proceeds than we would. I appreciate any advice you can share.

A:

You need to check IRS Publication 950.  It explicitly mentions the lifetime exclusion of $1,000,000.

Here is a link to that part on the web.

To see the entire Pub. 950:

Web-Friendly HTML

Downloadable PDF

Good luck.

Kerry Kerstetter

 

 

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